If you are like most people, after your first few losing trades you set about to learn better market analysis. After your next string of losers you learned about risk management. But there's still one more challenge to conquer; yourself.
That is the major premise of this book. If it sounds like wishy-washy psycho-babble to you, I'll only say that I would have agreed -- four months ago, before I quit my 20-year technology career, obtained a Series/7 license and joined a professional day-trading firm. I now believe most people would lose money if you gave them 50/50 odds on whether or not it was going to rain tomorrow.
In other words, successfully forecasting the market is not enough. Why not? Well, this book explains why not. It has to do with one's sense of self-worth, one's moral judgment of money, one's work-ethic, one's tendency to focus on good news while ignoring bad, and other things.
"Zone" was recommended to a friend of mine by a professional floor trader who told him, "I wish I had read it before starting two years ago. Don't place another trade until you do." Well said. Does this apply to investors as well as traders? Oh, absolutely! If you have ever said to yourself, "I'm not selling that stock while it's down, I'll wait until I have a profit in it," then for the love of money, read this book.
Finally, read "Zone" before Douglas' earlier work. If you still want more then read "Disciplined Trader" for a general review plus a deeper exploration into the author's philosophical and meta-physical theories.
on November 17, 2004
If you want to fulfill your expectations of a perfect trading system this is not your book. This book is about you and the market; is about how to set up your mind to become a consistent winner.
Chapter 1 describes the necessary mental framework for trading properly.
Chapter 2 shows the psychological challenges a trader must face up to.
Chapters 3 to 5 define the mental framework for trading and what will happen if you lack it.
Chapters 6 and 7 tell us how to get that mental framework from a personal point of view ( opportunity flow and thinking in probabilities).
Chapters 8 to 10 describe how to achieve that mental framework from the market's point of view.
Chapter 11 is an exercise to put it all together.
Although Mr. Douglas knows what he's talking about, his book requires more market examples. Furthermore he loses the thread of his arguments at times and request to be reviewed several times to make the most of it.
In spite of this shortcomings it is correct a approach and worth reading.
on April 8, 2006
Because the core of the book - the emphasis on 'thinking probabilistically', and on banishing both fear and euphoria: on the system rather than on individual trades - is excellent and worth the cover price alone.
However there is a wearying amount of padding - most of it in the 'obviousness' category. The author spends pages at a time, for example, telling us that:
1. We have beliefs
2. Those beliefs cause us to act certain ways
3. We can change those beliefs
4. Therefore causing us to act in different ways.
(etc etc etc)
We knew all this.
Chief problem is that Douglas isn't a writer: doesn't know how to pare and refine material; reduce to essence; delete the unnecessary. Likes the sound of his own voice.
This also shows in the frequent spelling and grammatical mistakes, and the poor punctuation - which tends to throw one's attention all over the page, trying to discern a meaning. I'd have hoped the publisher - Prentice Hall - could have afforded an editor.
Douglas also affects, at times, knowledge of things he knows nothing about. E.g. equating negative ions with negative emotions - i.e. an electrical charge with a metaphor (!) Even a bit of school science would have prevented this one.
Hard to know whether to recommend this book or not, as reading it will waste much of your time: as you proceed from gem to gem (and there are many) via a wilderness of excess, often meaningless, verbiage.
Advice to wealthy readers: Pay someone to rip out the time-wasting pages, and chapters, and salvage for you the worthwhile bits - most of them in the first half.
Advice to Prentice Hall: Employ editors; you'll find it cost-effective in the long run. For example, people will recommend more of your books to other people.
Advice to Mark Douglas: cut this book in half, or less.
The zone is a fearless, flexible and probabilistic state of mind that is consistently focused in what Douglas calls the "now moment opportunity flow" of the market based on objectively-identified edges. According to Douglas, the "now moment" means that "there is no potential to associate an opportunity to get into, get out of, add too, or detract from a trade with a past experience that already exists in your mental environment" (pg. 130). Consistently successful trading requires a high degree of mental flexibility, based on certain fearless attitudes and a probabilistic mind-set, to flow in and out of trades based on what the market is saying about the possibilities from its perspective. One must have a trading system that eliminates one's susceptibility to typical trading errors (as listed on page 186) and duplicates how a casino operates. Like the casinos, the consistently successful traders know that over a series of events (or trades), the odds are in their favor, but in order to realize the benefits of the favorable odds, they have to participate in every event (or trade). In other words, they know they won't be successful on every single trade at the micro level, but on the macro level the outcomes over a series of trades will produce consistently successful results provided that the following is true: 1) one has an edge that genuinely puts the odds of success in your favor; 2) you can think about trading in the appropriate manner, and 3) you can do everything you need to do over a series of trades. Regarding the first, you must know what defines an edge which requires you to be well educated in market/technical analysis. Douglas assumes that most of the people reading his book have this education. Regarding the second, Douglas provides five fundamental truths that must be mentally absorbed to approach trading successfully. Regarding the third, Douglas provides a trading exercise in the last chapter that requires your trading system to fit within seven specifications (from trade entry to accepting the risk). The purpose of the exercise is to help integrate the five fundamental truths into your mind (belief system).
In addition to the five fundamental truths, Douglas also provides in the last chapter seven complementary principles of consistency which he calls "sub-beliefs" to, or reasons for, the primary objective of believing one is a consistent winner at trading. He also introduces and explains the trader's three stages of development: the mechanical, the subjective, and the intuitive. The first ten chapters of the book contain a lot of general information related to beliefs and expectations that is beneficial to self-understanding outside of trading but is specifically applied to trading as preparation for the essential and culminating last chapter, Thinking Like a Trader, which includes the trading exercise. For experienced traders, I recommend completing the survey at the beginning of the book and then, after one has studied the text, complete it again to see how the book's content impacted one's trading beliefs and practice. As a novice to the field of trading, I consider this book essential reading for both newcomers and professionals although the latter will probably appreciate it more.
on October 26, 2002
I have traded now for nearly 3 years. I have book shelves full of books about trading, from technical analysis to trading tactics. Not until I read this book did I understand what it meant to create a trading plan - or for that matter, what the plan should look like. It was not until I read this book that I understood that simply trying harder, studying more, or researching deeper, would NOT improve my trading. And if fact, for reasons made obvious in this book, these pursuits can actually be detrimental.
However, I really think that an appreciation for this book can not be fully realized until a trader has been knocked around a bit - much like most teenagers can't be "told". After you have read the books on technical analysis (which I believe IS important), and after you have lost enough money, then read this book. You'll be the most out of it that way!
on May 24, 2003
Every trader knows that mastering your emotions is key to success in the market, and every would be trader has heard or read this. "Trading in the Zone" is sort of an "inner game" book for trading stocks and commodities, but far superior to other such books that I've seen. Mark Douglas gets into detail about how our beliefs, attitudes, etc, originate from our experiences, control our perceptions of the world and shape our actions in ways that may be contrary to our best interests, and then tells how to overcome these negative influences to produce positive results in the market. But, unlike most books of this sort, it isn't just "tell yourself that you're good". He lays out a specific plan for developing your "game" of trading, so that you learn how to develop a proper emotional state along with your technique. He stresses low risk trades, so that you have time to learn without being wiped out in the process. And he stresses paying yourself as the market makes profits available, so that you can enjoy positive results and their psychological benefit even if the overall trade result is negative. I think this book is also useful for life in general. I gave the book 4 stars instead of 5 because I felt that he used too much repetition, no doubt in an effort to drive home his point.
on January 8, 2004
The process of becoming a successful traders is not just about learning about markets and developing a trading system that works, there is so much more to it than that. Most people get wrapped up in practical nuts and bolts of trading or investing but miss the most important step. Developing the proper mental and psychological skills.
To become consistent, it is essential that one spend some time getting to know what the market really is as opposed to what the trader would like it to be. The market is not your enemy, does not owe you anything and does not care whether you win or lose. It just is. The sooner one accepts that, the faster he/she progresses. This means performing a careful self-assessment, identifying beliefs that will short circuit consistency and getting them out of the way. As Douglas describes it, 95% of the trading errors all traders make are due to his or her attitudes (fears) about four things. 1) being wrong, 2) losing money, 3) missing out and 4 ) leaving money on the table. Getting over them may seem daunting in the beginning but that is where the book comes in.
Douglas also describes the process that all successful traders must go through and that is developing a probabilistic mindset. All great traders have learned to think in probabilities. This means that every market decision is only made once a risk/reward ratio has been determined, stop losses and profit goals established and pre-determined conditions for taking the trade known. By removing the extraneous "noise" that causes undue emotional and psychological stress, decisions become easier to make.
As is true of most things in life, sounds easier to do than it is but the good news is that with a little practice and with help of an exercise outlined in the book, it is very doable.
Zone is a book that you will want to read multiple times. As Douglas says, it is a book that took him five years of his life to write. It was obviously a labor of love. This comes through loud and clear when reading it. The book is also one that should be in the library of anyone in the markets today, no matter whether your approach is straight technical analysis, strictly fundamental or (if you are like me) somewhere in between. My book is covered in post-it notes, underlines and yellow highlighter. It is also one of the three best books on trading to date that I have reviewed.
Matt Blackman - Technical trading writer/reviewer and regular contributor to Technical Analysis of Stocks & Commodities Mag, Traders Mag (Europe), Working Money, Traders.com Advantage and SFO Magazine, Investopedia.com and the thechartmaster.com
on August 20, 2002
I have to say something VERY strong about this book. It made me STOP trading. I realized about a quarter of the way through this book that I was NOT on my game and that I was open fodder for the real Pro's that have the skills and abilities that he speaks of. I am a professional trader and I even help run a very successful trading firm, but I've been trading by feel and emotion for too long now and have lost about 200,000 the past 3 years in the market and I just couldn't take it anymore.
By reading this book, by stopping trading and re grouping, I know my trading will be much better and that every trader that trades my money or my firms money, will be required to not only read this book, but to recant the most important parts.
Dont just buy this book, learn it and trade by its valuable tenets.
on January 14, 2006
Mark Douglas has written an excellent book about the fears, egos and human frailties that all traders must eventually conquer if they are to become successful. It is generally acknowledged that there are three parts to being a successful trader: 1) A 'system' you follow with dedication; 2) Money Management meaning, how to keep losses small, how to let profits run, and how to allocate your investment funds; and 3) Controlling yourself -- your emotions, your fears, your greed. This book addresses the third of these three parts.
To be honest, my guess is that most new traders will not benefit (meaning they won't believe it is important) from reading this book until they have been in the market and gotten their head handed to them a couple of times. Then, after they realize that this 'trading game' is not as easy as they had hoped or were led to believe, they will then start to get serious and decide they had better learn how to play the game right or they won't last long.
This is not a book on how to trade. It is a book on how you must learn to control and manage yourself while trading. To that end, it does an excellent job.
What this book sets out to do is teach how to change from reactive, ego driven trading to trading in "The Zone" by using a preset system as opposed to trading based on your emotions and ego, which is very destructive to new traders. The book was a great complement to the other 20 trading books I have read. This one really drove home the importance of finding a system that works and then mechanically staying with it and not getting greedy or fearful and just start gambling. Your system should include stop losses to keep losses limited, when to take profits, and what indicators will give you entry and exit signals. This book is for traders that already understand the technical aspects of trading. The book focuses almost entirely on the beliefs and desires of traders that make them unsuccesful. The book recommends executing 20 trades using your system of choice in a purely mechanical fashion. This teaches discipline and takes out the guessing game. This gives you consistent casino odds as opposed to the odds of a gambler jumping randomly in and out of the market.The importance of working a consistent system is supported in almost all trading books.
The 5 principles of thinking in probabilities
1. Anything can happen
2. You don't have to know what is going to happen next in order to make money.
3. There is a random distribution between wins and losses for any given set of variables that define an edge.
4. An edge is nothing more than an indication of a higher probability of one thing happening over another.
5. Every moment in the market is unique.
I am a consistent winner because:
1. I objectively identify my edges.
2.I predefine the risk of every trade.
3. I completely accept the risk or I am willing to let go of the trade.
4. I act on my edges without reservation or hesitation.
5. I pay myself as the market makes money available to me.
6. I continually monitor my susceptability for making errors.
7. I understand the absolute necessity of these principles of consistent success and, therefore, I never violate them.
This review can not do enough justice to this book, buy it, read it.