📚 Trading in the Zone: Master the Market with Confidence, Discipline, and a Winning Attitude by Mark Douglas

The author’s objectives in writing the book:

To prove to the trader that more or better market analysis is not the solution to his trading difficulties or lack of consistent results.
To convince the trader that it is his attitude and “state of mind” that determine his results
To provide the trader with the specific beliefs and attitudes that are necessary to build a winner’s mindset, which means learning how to think in probabilities.
To address the many conflicts, contradictions, and paradoxes in thinking that cause the typical trader to assume that he already does think in probabilities, when he really doesn’t.
To take the trader through a process that integrates this thinking strategy into his mental system at a functional level.

Trading is, by its very nature, fraught with paradoxes. Perspectives, principles and attitudes that work well for people in everyday life are strikingly counterproductive when applied to trading.

Those traders who have confidence in their own trades, who trust themselves to do what needs to be done without hesitation, are the ones who become successful. They no longer fear the erratic behaviour of the market. They learn to focus on the information that helps them spot opportunities to make a profit, rather than focusing on the information that reinforces their fears.

While we have learned technical analysis, there can still be a huge gap between what we understand about the markets, and our ability to transform that knowledge into consistent profits or a steadily rising equity curve.

The defining characteristic that separates the consistent winners from everyone else is this: The winners have attained a mindset—a unique set of attitudes—that allows them to remain disciplined, focused, and, above all, confident in spite of the adverse conditions. As a result, they are no longer susceptible to the common fears and trading errors that plague everyone else. Everyone who trades ends up learning something about the markets; very few people who trade ever learn the attitudes that are absolutely essential to becoming a consistent winner.

The best traders not only take the risk, they have also learned to accept and embrace that risk. There is a huge psychological gap between assuming you are a risk-taker because you put on trades and fully accepting the risks inherent in each trade. When you fully accept the risks, it will have profound implications on your bottom-line performance. The risks inherent in trading do not cause the best traders to lose their discipline, focus, or sense of confidence.

Trading presents us with a fundamental paradox: How do we remain disciplined, focused, and confident in the face of constant uncertainty? Learning to accept the risk is a trading skill—the most important skill you can learn.

The best traders are not afraid. They are not afraid because they have developed attitudes that give them the greatest degree of mental flexibility to flow in and out of trades based on what the market is telling them about the possibilities from its perspective. At the same time, the best traders have developed attitudes that prevent them from getting reckless. Everyone else is afraid, to some degree or another.

Ninety-five per cent of the trading errors you are likely to make—causing the money to just evaporate before your eyes—will stem from your attitudes about being wrong, losing money, missing out, and leaving money on the table. What the author calls the four primary trading fears.

If you are afraid of being wrong, the fear will act upon your perception of market information in a way that will cause you to do something that ends up making you wrong. When you are fearful, no other possibilities exist. You cannot perceive other possibilities or act on them properly, even if you did manage to perceive them because fear is immobilizing.

The hard, cold reality of trading is that every trade has an uncertain outcome. Unless you learn to completely accept the possibility of an uncertain outcome, you will try either consciously or unconsciously to avoid any possibility you define as painful. In the process, you will subject yourself to any number of self-generated, costly errors.

Confidence and fear are contradictory states of mind that both stem from our beliefs and attitudes. To be confident, functioning in an environment where you can easily lose more than you intend to risk, requires absolute trust in yourself. You have two choices: You can try to eliminate risk by learning about as many market variables as possible. (the author calls this the black hole of analysis because it is the path of ultimate frustration.) Or you can learn how to redefine your trading activities in such a way that you truly accept the risk and are no longer afraid. The solution: You will need to learn how to adjust your attitudes and beliefs about trading in such a way that you can trade without the slightest bit of fear, but at the same time keep a framework in place that does not allow you to become reckless. Successful traders have virtually eliminated the effects of fear and recklessness from their trading.

Taking responsibility

The hard reality of trading is that, if you want to create consistency, you have to start from the premise that no matter what the outcome, you are completely responsible.

The author defines a positive winning attitude as expecting a positive result from your efforts, with an acceptance that whatever results you get are a perfect reflection of your level of development and what you need to learn to do better. That is what great athletes have: a winning attitude that allows them to easily move beyond their mistakes and keep going. Winning in any endeavour is mostly a function of attitude. And losing is a natural consequence of trading. If you have ever found yourself blaming the market or feeling betrayed, then you have not given enough consideration to the implications of what it means to play a zero-sum game. Any degree of blaming means you have not accepted the reality that the market owes you nothing, regardless of what you want or think or how much effort you put into your trading. Taking responsibility means acknowledging and accepting, at the deepest part of your identity, that you—not the market—are completely responsible for your success or failure as a trader. With these beliefs and expectations, it is unlikely that he would experience a deterioration of his attitude, and would go on to the next trade.

Taking responsibility means believing that all of your outcomes are self-generated; that your results are based on your interpretations of market information, the decisions you make and the actions you take as a result.

Taking anything less than complete responsibility sets up two major psychological obstacles that will block your success. First, you will establish an adversarial relationship with the market that takes you out of the constant flow of opportunities. Second, you will mislead yourself into believing that your trading problems and lack of success can be rectified through market analysis.

Losing (when you expected the market to do something different from what it did) will tap you into the same childlike feelings of pain, anger, resentment, and powerlessness that all of us felt when someone took something away from us, didn’t give us what we wanted, or wouldn’t let us do what we wanted..

From the market’s perspective, each moment is neutral; to you, the observer, every moment and price change can have meaning. But where do these meanings exist? The meanings are based on what you’ve learned and exist inside your mind, not in the market. The market is neutral, in the sense that it moves and generates information about itself. The market doesn’t attach meanings or interpret the information it generates about itself (although there are always individuals who will offer an interpretation if you’re willing to listen).

If you perceive the endless stream of opportunities to enter and exit trades without self-criticism and regret, then you will be in the best frame of mind to act in your own best interest and learn from your experiences.

When you do not take responsibility, one of the major psychological obstacles that can block your success is that you will mislead yourself into believing that your trading problems and lack of consistency can be rectified through market analysis.

Learning more and more about the markets only to avoid pain will compound his problems because the more he learns, the more he will naturally expect from the markets, making it all the more painful when the markets don’t do their part. He has unwittingly created a vicious cycle where the more he learns, the more debilitated he becomes; the more debilitated he becomes, the more he feels compelled to learn. The cycle will continue until he either quits trading in disgust or recognizes that the root cause of his trading problems is his perspective, not his lack of market knowledge. The worst consequence of not taking responsibility is that it keeps you in a cycle of pain and dissatisfaction.

You are not responsible for what the market does or doesn’t do, but you are responsible for everything else that results from your trading activities.

Consistency: A state of mind

What separates the best traders from everyone else is not what they do or when they do it, but rather how they think about what they do and how they’re thinking when they do it. If your goal is to trade like a professional and be a consistent winner, then you must start from the premise that the solutions are in your mind and not in the market. Your state of mind is a by-product of your beliefs and attitudes.

Accepting the risk means accepting the consequences of your trades without emotional discomfort or fear. This means that you must learn how to think about trading and your relationship with the markets in such a way that the possibility of being wrong, losing, missing out, or leaving money on the table doesn’t cause your mental defence mechanisms to kick in and take you out of the opportunity flow. Rather, you will let the market unfold and you will make yourself available to take advantage of whatever situations you define as opportunities.

When you make yourself available to take advantage of an opportunity, you don’t impose any limitations or expectations on the market’s behaviour. You are perfectly satisfied to let the market do whatever it’s going to do. However, in the process of doing something, the market will create certain conditions you define and perceive as opportunities. You act on those opportunities to the best of your ability, but your state of mind is not dependent upon or affected by the market’s behaviour. If you can learn to create a state of mind that is not affected by the market’s behaviour, the struggle will cease to exist.

The traders who break through the cycle and ultimately make it are the ones who eventually learn to stop avoiding and start embracing responsibility and risk. Most of those who successfully break the cycle don’t make the shift in thinking until they have experienced so much pain from large losses that it has the positive effect of stripping away their illusions about the nature of trading.

The dynamics of perception

What do you see?

From the market’s perspective, it’s all simply information. It may seem as if the market is causing you to feel the way you do at any given moment, but that’s not the case. It’s your own mental framework that determines how you perceive the information, how you feel, and, as a result, whether or not you are in the most conducive state of mind to spontaneously enter the flow and take advantage of whatever the market is offering

If your goal is to be able to trade like a professional, you must be able to see the market from an objective perspective, without distortion. You must be able to act without resistance or hesitation, but with the appropriate amount of positive restraint to counteract the negative effects of overconfidence or euphoria.

People see what they want to see; creating their filters and biases. People see what they have learned to see and everything else is invisible until they learn how to counteract the energy that blocks their awareness of whatever is unlearning and waiting to be discovered.

Our mind creates perception.

A top trader would say that your fear is irrational because this “now moment” opportunity has absolutely nothing to do with your last trade. Each trade is simply an edge with a probable outcome and is statistically independent of every other trade.

One of your basic objectives as a trader is to perceive the opportunities available, not the threat of pain. To learn how to stay focused on the opportunities, you need to know and understand in no uncertain terms the source of the threat. It’s not the market. The market generates information about its potential to move from a neutral perspective. At the same time, it provides you (the observer) with an unending stream of opportunities to do something on your own behalf.

If you can accept the fact that the market doesn’t generate positively or negatively charged information as an inherent characteristic of the way it expresses itself, then the only other way information can take on a positive or negative charge is in your mind, and that is a function of the way the information is processed. In other words, the market doesn’t cause you to focus on failure and pain, or on winning and pleasure.

Our minds constantly associate what’s outside of us (information) with something that’s already in our mind (what we know), making it seem as if the outside circumstances and the memory, distinction, or belief these circumstances are associated with are exactly the same.

If you were coming off two or three losing trades, the next signal the market gives you that an opportunity was present will feel overly risky. Your mind is automatically and unconsciously linking the “now moment” with your most recent trading experiences. The link taps you into the pain of losing, creating a fearful state of mind and causing you to perceive the information you’re exposed to at that moment from a negative perspective. It seems as if the market is expressing threatening information, so, of course, your hesitation is justified.

On the contrary, the same process causes you to perceive the situation from an overly positive perspective because you are coming off three winners in a row. The association between the “now moment” and the elation of the last three trades creates an overly positive or euphoric state of mind, making it seem as if the market is offering you a riskless opportunity. Of course, this justifies overcommitting yourself.

Developing and maintaining a state of mind that perceives the opportunity flow of the market, without the threat of pain or the problems caused by overconfidence, will require that you take conscious control of the association process.

The market’s perspective

For the most part, a typical trader’s perception of the risk in any given trading situation is a function of the outcome of his most recent two or three trades (depending on the individual). The best traders, on the other hand, are not impacted (either negatively or too positively) by the outcomes of their last or even their last several trades. So their perception of the risk of any given trading situation is not affected by this personal, psychological variable. There’s a huge psychological gap here that might lead you to believe that the best traders have inherent design qualities in their minds that account for this gap, but this is not the case. Every trader the author has worked with over the last 18 years has had to learn how to train his mind to stay properly focused in the “now-moment opportunity flow”.

If there is such a thing as a secret to the nature of trading, this is it:

At the very core of one’s ability

to trade without fear or overconfidence,
perceive what the market is offering from its perspective,
stay completely focused on the “now moment opportunity flow,” and
spontaneously enter the “zone,” it is a strong virtually unshakeable belief in an uncertain outcome with an edge in your favour.

The best traders have evolved to the point where they believe, without a shred of doubt or internal conflict, that “anything can happen.” Their belief in uncertainty is so powerful that it actually prevents their minds from associating the “now moment” situation and circumstance with the outcomes of their most recent trades. By preventing this association, they are able to keep their minds free of unrealistic and rigid expectations about how the market will express itself. Instead of generating the kind of unrealistic expectations that more often than not result in both emotional and financial pain, they have learned to “make themselves available” to take advantage of whatever opportunities the market may offer in any given moment. Our minds don’t automatically perceive every opportunity that presents itself in any given moment.

The fear of admitting we are wrong causes us to place an inordinate amount of significance on information that tells us that we’re right.

A trending market is a distinction about the market’s behaviour we can ordinarily perceive, but this distinction can easily become invisible if we are operating out of fear. The trend and the opportunity to trade in the direction of that trend don’t become visible until we are out of the trade. In addition, there are opportunities that are invisible to us because we haven’t learned to make the distinctions that would allow us to perceive them. What we haven’t learned yet is invisible to us, and remains invisible until our minds are open to an exchange of energy. A perspective from which you make yourself available takes into consideration both the known and the unknown.

With the perspective of making yourself available, you know that your edge places the odds of success in your favour, but, at the same time, you completely accept the fact that you don’t know the outcome of any particular trade. By making yourself available, you consciously open yourself up to find out what will happen next; instead of giving way to an automatic mental process that causes you to think you already know. Adopting this perspective leaves your mind free of internal resistance that can prevent you from perceiving whatever opportunity the market is making available from its perspective (its truth).

The ultimate success as a trader cannot be realized until you develop a resolute, unshakeable belief in uncertainty. The first step on the road toward getting your mind and the market in sync is to understand and completely accept the psychological realities of trading. Most people who go into trading think that being a trader is synonymous with being a good market analyst. Traders frequently ignore the fact that they may have to adapt in order to become consistently successful traders.

The market can do virtually anything at any time. This seems obvious enough, especially for anybody who has experienced a market that has displayed erratic and volatile price swings. All price movement is a function of what individual traders believe about what is high and what is low.

Only the best traders consistently predefine their risks before entering a trade. Only the best traders cut their losses without reservation or hesitation when the market tells them the trade isn’t working. And only the best traders have an organized, systematic, money-management regimen for taking profits when the market goes in the direction of their trade. Not predefining your risk, not cutting your losses, or not systematically taking profits are three of the most common—and usually the most costly—trading errors you can make.

The best traders don’t try to hide from these unknown variables by pretending they don’t exist, nor do they try to intellectualize or rationalize them away through market analysis. The best traders take these variables into account, factoring them into every component of their trading regimes.

Most important, by establishing a belief that anything can happen, he will be training his mind to think in probabilities. This is by far the most essential as well as the most difficult principle for people to grasp and to effectively integrate into their mental systems.

The trader’s edge: Thinking in probabilities

How can someone produce consistent results from an event that has an uncertain probabilistic outcome? To answer this question, all we have to do is look at the gambling industry.

Paradox: Random outcome, consistent results
Events that have probable outcomes can produce consistent results if you can get the odds in your favour and there is a large enough sample size. The best traders treat trading like a numbers game, similar to the way in which casinos and professional gamblers approach gambling.

What casino owners and professional gamblers understand about the nature of probabilities is that each individual hand played is statistically independent of every other hand. This means that each individual hand is a unique event, where the outcome is random relative to the last hand played or the next hand played. If you focus on each hand individually, there will be a random, unpredictable distribution between winning and losing hands. But on a collective basis, just the opposite is true. If a large enough number of hands is played, patterns will emerge that produce a consistent, predictable, and statistically reliable outcome.

Unpredictability of a single trade and outcome versus predictability and consistency of the trades over time
There are two layers of beliefs that on the surface seem to contradict each other.

Micro level: At this level, you have to believe in the uncertainty and unpredictability of the outcome of each individual hand. What they understand about the nature of trading is that at any given moment, the market may look exactly the same on a chart as it did at some previous moment but the actual consistency of the market itself from one moment to the next is never the same. A constant flow of both known and unknown variables creates a probabilistic environment where we don’t know for certain what will happen next.
Macro level: At this level, you have to believe that the outcome over a series of hands played is relatively certain and predictable. The degree of certainty is a function of how good the edge is.

It’s the ability to believe in the unpredictability of the game at the micro level and simultaneously believes in the predictability of the game at the macro level that makes the casino and the professional gambler effective and successful at what they do.

Because they don’t have to know what’s going to happen next, they don’t place any special significance, emotional or otherwise, on each individual hand, the spin of the wheel, or roll of the dice. In other words, they’re not encumbered by unrealistic expectations about what is going to happen, nor are their egos involved in a way that makes them have to be right. They stay relaxed because they are committed and willing to let the probabilities (their edges) play themselves out, all the while knowing that if their edges are good enough and the sample sizes are big enough, they will come out as net winners.

Trading involves a number of unknown variables that act on the outcome of any particular behaviour pattern a trader may identify and use as his edge. In trading, the unknown variables are all other traders who have the potential to come into the market to put on or take off a trade. Each trade contributes to the market’s position at any given moment, which means that each trader, acting on a belief about what is high and what is low, contributes to the collective behaviour pattern that is displayed at that moment.

Suppose the trader seizes the opportunity to take advantage of his edge and puts on a trade. What factors will determine whether the market unfolds in the direction of its edge or against it? The answer is the behaviour of other traders! At the moment he puts a trade on, and for as long as he chooses to stay in that trade, other traders will be participating in that market. They will be acting on their beliefs about what is high and what is low. There’s no way to know in advance how everyone else is going to behave and how their behaviour will affect his trade, so the outcome of the trade is uncertain. The outcome of every (legal) trade that anyone decides to make is affected in some way by the subsequent behaviour of other traders participating in that market, making the outcome of all trades uncertain.

Since all trades have an uncertain outcome, then like gambling, each trade has to be statistically independent of the next trade, the last trade, or any trades in the future, even though the trader may use the same set of known variables to identify his edge for each trade.

A prerequisite for thinking in probabilities is that you accept the risk because if you don’t, you will not want to face the possibilities that you haven’t accepted, if and when they do present themselves.

When you’ve trained your mind to think in probabilities, it means you have fully accepted all the possibilities (with no internal resistance or conflict) and you always do something to take the unknown forces into account. Thinking this way is virtually impossible unless you’ve done the mental work necessary to “let go” of the need to know what is going to happen next or the need to be right on each trade.

Traders who have learned to think in probabilities are confident of their overall success because they commit themselves to take every trade that conforms to their definition of an edge. They don’t attempt to pick and choose the edges they think, assume, or believe are going to work and act on those; nor do they avoid the edges that for whatever reason they think, assume, or believe aren’t going to work.

They have learned, usually quite painfully, that they don’t know in advance which edges are going to work and which ones aren’t. They have stopped trying to predict outcomes. On the other hand, why do you think unsuccessful traders are obsessed with market analysis? They crave the sense of certainty that analysis appears to give them. Although few would admit it, the truth is that the typical trader wants to be right on every single trade. You are desperately trying to create certainty where it just does not exist. Only when you achieve complete acceptance of the uncertainty of each edge and the uniqueness of each moment, your frustration with trading will end. You will no longer be susceptible to making all the typical trading errors that detract from your potential to be consistent and destroy your sense of self-confidence

The typical trader won’t predefine the risk of getting into a trade because he doesn’t believe it’s necessary. The only way he could believe “it isn’t necessary” is if he believes he knows what’s going to happen next. The reason he believes he knows what’s going to happen next is that he won’t get into a trade until he is convinced that he’s right. At the point where he’s convinced the trade will be a winner, it’s no longer necessary to define the risk (because if he’s right, there is no risk). The potential damage caused by holding unrealistic expectations comes from how it affects the way we perceive information.

When we expect something, we are projecting out into the future what we believe to be true. We are expecting the outside environment a minute, an hour, a day, a week, or a month from now to be the way we have represented it in our minds. We have to be careful about what we project out into the future because nothing else has the potential to create more unhappiness and emotional misery than an unfulfilled expectation.

To protect ourselves from painful information at the conscious level, we rationalize, justify, make excuses, willfully gather the information that will neutralize the significance of the conflicting information, get angry (to ward off the conflicting information), or just plain lie to ourselves. At the subconscious level, the pain-avoidance process is much more subtle and mysterious. At this level, our minds may block our ability to see other alternatives, even though in other circumstances we would be able to perceive them. Now, because they are in conflict with what we want or expect, our pain-avoidance mechanisms can make them disappear (as if they didn’t exist).

To avoid pain, we narrow our focus of attention and concentrate on information that keeps us out of pain, regardless of how insignificant or minute. In the meantime, the information that clearly indicates the presence of a trend and the opportunity to trade in the direction of that trend becomes invisible. The trend doesn’t disappear from physical reality, but our ability to perceive it does. Our pain-avoidance mechanisms block our ability to define and interpret what the market is doing as a trend.

The trend will then stay invisible until the market either reverses in our favour or we are forced out of the trade because the pressure of losing too much money becomes unbearable. It’s not until we are either out of the trade or out of danger that the trend becomes apparent, as well as all the opportunities to make money by trading in the direction of the trend. We all have the potential to engage in self-protective pain-avoidance mechanisms because they’re natural functions of the way our minds operate.

As traders, we can’t afford to let our pain-avoidance mechanisms cut us off from what the market is communicating to us about what is available in the way of the next opportunity to get in, get out, add to, or subtract from a position, just because it’s doing something that we don’t want or expect.

We have to be rigid in our rules and flexible in our expectations. We need to be rigid in our rules so that we gain a sense of self-trust that can, and will always, protect us in an environment that has few, if any, boundaries. We need to be flexible in our expectations so we can perceive, with the greatest degree of clarity and objectivity, what the market is communicating to us from its perspective. The typical trader does just the opposite: He is flexible in his rules and rigid in his expectations. Interestingly enough, the more rigid the expectation, the more he has to either bend, violate, or break his rules in order to accommodate his unwillingness to give up what he wants in favour of what the market is offering.

A probabilistic mindset pertaining to trading consists of five fundamental truths.

Anything can happen.
You don’t need to know what is going to happen next in order to make money.
There is a random distribution between wins and losses for any given set of variables that define an edge.
An edge is nothing more than an indication of a higher probability of one thing happening over another.
Every moment in the market is unique

The idea is to create a carefree state of mind that completely accepts the fact that there are always unknown forces operating in the market. When you make these truths a fully functional part of your belief system, the rational part of your mind will defend these truths in the same way it defends any other belief you hold about the nature of trading. This means that, at least at the rational level, your mind will automatically defend against the idea or assumption that you can know for sure what will happen next. It’s a contradiction to believe that each trade is a unique event with an uncertain outcome and random in relationship to any other trade made in the past, and at the same time to believe you know for sure what will happen next and to expect to be right.

The best traders are in the “now moment” because there’s no stress. There’s no stress because there’s nothing at risk other than the amount of money they are willing to spend on a trade. They are not trying to be right or trying to avoid being wrong; neither are they trying to prove anything. If and when the market tells them that their edges aren’t working or that it’s time to take profits, their minds do nothing to block this information. They completely accept what the market is offering them, and they wait for the next edge.

Working with your beliefs

The underlying force behind each pattern is traders, and the traders who contribute to the formation of one pattern are always different from the traders who contribute to the next; so the outcome of each pattern is random relative to one another.

If it’s not the market that causes us to experience a negatively charged state of mind, then what does cause it? The way we define and interpret the information we perceive. What we believe or what we assume to be true. Expectations are beliefs projected into some future moment.

Our state of mind is always the absolute truth. The problem is that how we feel is always the absolute truth, but the beliefs that triggered our state of mind or feeling may or may not be true relative to the possibilities that exist in the market at any given moment. This same process causes us to believe that we “know” exactly what to expect from the market when the reality is there are always unknown forces operating at every moment. In other words, we really can’t know exactly what to expect from the market, until we can read the minds of all the traders who have the potential to act as a force on price movement. Not a very likely possibility. As traders, we can’t afford to indulge ourselves in any form of “I know what to expect from the market.”

Objectives: Creating consistent results and being able to keep what we’ve created does require a skill. Making money consistently is a by-product of acquiring and mastering certain mental skills. The degree to which you understand this is the same degree to which you will stop focusing on the money and focus instead on how you can use your trading as a tool to master these skills.

Skills: Consistency is the result of a carefree, objective state of mind, where we are making ourselves available to perceive and act upon whatever the market is offering us (from its perspective) in any given “now moment.”

Carefree state of mind: Confident, but not euphoric. When you are in a carefree state of mind, you won’t feel any fear, hesitation, or compulsion to do anything, because you’ve effectively eliminated the potential to define and interpret market information as threatening. To remove the sense of threat, you have to accept the risk completely. When you have accepted the risk, you will be at peace with any outcome. To be at peace with any outcome, you must reconcile anything in your mental environment that conflicts with the five fundamental truths about the market. What’s more, you also have to integrate these truths into your mental system as core beliefs.

Objectivity: A state of mind where you have conscious access to everything you have learned about the nature of the market movement. In other words, nothing is being blocked or altered by your pain-avoidance mechanisms.

Make yourself available: Trading from the perspective that you have nothing to prove. You aren’t trying to win or to avoid losing. You aren’t trying to get your money back or to take revenge on the market.

“Now moment”: 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.

Let the market tell you, from its perspective, what is likely to happen next.

The nature of beliefs

In the broadest sense, our beliefs shape the way we experience our lives. None of us likes to have our beliefs challenged. The moment we acquire a belief, it seems to take on a life of its own, causing us to recognize and be attracted to its likeness and repelled by anything that is opposite or contradictory. Beliefs control our perception of information.

The underlying cause of fear is the potential to define and interpret market information as threatening. What is the source of our potential to interpret market information as threatening? Our expectations. We experience fear, stress, and anxiety. What is the underlying source of our expectations? Our beliefs.

Thinking like a trader

Trading is a pattern recognition numbers game. We use market analysis to identify the patterns, define the risk, and determine when to take profits. The trade either works or it doesn’t. In any case, we go on to the next trade and the next, never dwelling on past failures or beoming emboldened by a streak of successes and/or losses. It’s that simple, but it’s certainly not easy.

The more you think you know, the less successful you’ll be. Trading is hard because you have to operate in a state of not having to know, even though your analysis may turn out at times to be “perfectly” correct. To operate in a state of not having to know, you have to properly manage your expectations. To properly manage your expectations, you must realign your mental environment so that you believe without a shadow of a doubt in the five fundamental truths.

Observe yourself

The first step in the process of creating consistency is to start noticing what you’re thinking, saying, and doing. The idea is eventually to learn to become an objective observer of your own thoughts, words, and deeds. Observing yourself objectively implies doing it without judgment or any harsh criticism as a consequence of what you’re noticing about yourself.

If producing consistent results is a function of eliminating errors, then it is an understatement to say that you will encounter great difficulty in achieving your objective if you can’t acknowledge a mistake. Obviously, this is something very few people can do, and it accounts for why there are so few consistent winners.

Making mistakes is a natural function of living and will continue to be until we reach a point at which:

all our beliefs are in absolute harmony with our desires, and
all our beliefs are structured in such a way that they are completely consistent with what works from the environment’s perspective

Obviously, if our beliefs are not consistent with what works from the environment’s perspective, the potential for making a mistake is high, if not inevitable. On the other hand, mistakes that are the result of beliefs that are in conflict with our objectives aren’t always apparent or obvious.

The most difficult to detect is a distracting thought that causes a momentary lapse in focus or concentration. When our intent is clear and undiminished by any opposing energy, then our capacity to stay focused is greater, and the more likely it is that we will accomplish our objective.

What separates the “consistently great” athletes and performers from everyone else is their distinct lack of fear of making a mistake. The reason they aren’t afraid is that they don’t have a reason to think less of themselves when they do make a mistake.

If, by repeated negative self-criticism, we acquire a belief that we’re “screw-ups,” that belief will find a way to express itself in our thoughts, causing us to become distracted and to screw up; on our words, causing us to say things about ourselves or about others (if we notice the same characteristics in them) that reflect our belief; and on our actions, causing us to behave in ways that are overtly self-sabotaging.

If you’re going to become a consistent winner, mistakes can’t exist in the kind of negatively charged context in which they are held by most people.

You can work on acquiring a new set of positively charged beliefs about what it means to make a mistake, along with de-activating any negatively charged beliefs that would argue otherwise or cause you to think less of yourself for making a mistake.
If you find this first choice undesirable, you can compensate for the potential to make errors by the way you set up your trading regime. This means that if you’re going to trade and not monitor yourself, but at the same time you desire consistent results, then trading exclusively from the mechanical stage will resolve the dilemma.

When you’re clear about your purpose, simply start directing your attention to what you think, say, or do.

If and when you notice that you’re not focused on your objective or on the incremental steps to accomplish your objective, choose to redirect your thoughts, words, or actions in a way that is consistent with what you are trying to accomplish. Keep redirecting as often as necessary. The more willfully you engage in this process, especially if you can do it with some degree of conviction, the faster you will create a mental framework free to function in a way that is consistent with your objectives, without any resistance from conflicting beliefs.

Creating a belief in consistency

Creating a belief that “I am a consistent winner” is the primary objective. The following sub-beliefs are the building blocks that provide the underlying structure for what it means “to be a consistent winner.”

I am a consistent winner because:

I objectively identify my edges.
I predefine the risk of every trade.
I completely accept the risk or I am willing to let go of the trade.
I act on my edges without reservation or hesitation.
I pay myself as the market makes money available to me.
I continually monitor my susceptibility to making errors.
I understand the absolute necessity of these principles of consistent success and, therefore, I never violate them.

When you stop making trading errors, you’ll begin trusting yourself. When you genuinely accept the risks, you will be at peace with any outcome. The process of transformation starts with your desire and your willingness to refocus on the object of your desire (self-discipline).