In today’s lesson, we will review the book “Trading In the Zone”. Trading in the zone is considered a Bible of Trading, and it wonderfully explains the psychology of a successful trader.
To master trading, you need to master the psychological aspect of trading, and to help us improve our psychology author Mark Douglas has come up with this amazing book. So, here are the Top 3 Takeaways from the Book “Trading In the Zone”.
When it comes to accepting losses in trading, there are two types of traders. One who accepts the losses peacefully & moves on, and the other is the one who does revenge trading when they face losses. In the beginning phase, everyone hates losses, but you need to learn that losses are part of the game.
Losses are common in trading, but how you face them matters the most, and it will immensely affect your profitability. One of the most important aspects you need to learn in trading is accepting your losses in the right way. These skills will not develop suddenly. As you get more and more experience, you will automatically know how you should handle your losses to make a sustainable trading trader.
Amateur traders often think about only profit, and this is where their psychology goes wrong. Every trade you put has randomly distributed outcomes that you can’t control. From this book, you will learn how the game of probabilities and outcomes works in the bigger time frame and how you can establish your trading edge by thoroughly understanding the game of probabilities.
I consider markets as an ocean of opportunities. In your long-term trading career, you have to get through a lot of phases where you will face winning streaks, losing streaks, winning months, or losing months.
Markets will keep on changing, and they will test your patience by putting you in different situations. If you get frustrated when you make a loss and you get overconfident when you make a profit, then probably you need to work more on your psychology to counter this problem.
In trading, you need a lot of emotional control; take frequent breaks from trading as and when it is required but don’t let your emotions control your trading decisions. If your emotions control your trading decision, then you are 100% going to lose money. So, In order to avoid that, take frequent breaks from trading that will help you to come back with a fresh mind so that you can perform more effectively.
Many traders talk about the edge in different ways. People say that they have the edge in this system, or this trader has an edge. But what exactly is the edge?
Today, I will explain the edge in a purely mathematical way. For example, If we play the game of coin toss, then there are only two possible outcomes. One is Heads, and another one is tails. The probability of both of these outcomes is 50-50%. So if we play this game over a long period of time, both of us are not going to win. So, in this game, there is no edge. But in trading, your edge will be dependent upon your risk to reward ratio.
If you are taking a 1:1 trade, then over a long period of time, it is very difficult to come out profitable, but if you take a high probability trade with a greater risk to reward ratio (such as 1:2,1:3 or 1:4), then you will have the edge in this system. One more point to note here is for making high Risk to Reward trades, you need to hold them for that long, and in order to do that, you need to have good trading psychology.
So all the aspects of trading are interdependent; without analysis, you can’t find a good trade, and without the right trading psychology, you will not be able to hold those trades.
So, these are the Top 3 Lessons you should take from the book “Trading In the Zone”. If you have not read this book yet, then I strongly recommend you to go through this book once. I think this book will be a great read if you really want to understand the concept of probabilities in trading. Click Here to get a copy of this book.
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