Book Club - Trading in the Zone June 2022

[Norma 33]

Chapter 6

W: “A trending market is a distinction about the market’s behavior 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”.

A: Even when the market gives us the most obvious signals and opportunity to take a trade, we fail to recognize them. Our “narrow minds” and the fear of the “unknown” prevent us from perceiving the opportunities with an open mind; prevent us from embracing the unknown (outcome). We need to accept with grace “anything can happen” and be ready.How many times we said to ourselves: “how did I miss that entry ….” “what was I thinking when….” “I should have stayed longer…..” and the list can go on

One of the issues I’m still working on.

[Dan F 73]

W When finding your edge, it is important to apply the basics of trading to your trade.  You can have your edge but it doesn’t escape how stocks work no matter how good you think it works. What is needed varies per week as my edge is not totally formed.

A Mark said something about how to predefine the risk before entering

A Last week it hit me while in a trade and different time frame that I didn’t know where I was going to exit a trade when I got into a trade. I think beyond letting my trades run that I need to define the risk before entering. This week the way that I plan on doing the apply part is to focus on leaving my stop outs on any of my standard range or Moving Average breaks.

[Miguel Angel 65]

Chapter 6 Entry:

W - "What the typical trader doesn't realize is that he needs an inner mechanism, in the form of some powerful beliefs, that virtually compels him to perceive the market from a perspective that is always expanding with greater and greater degrees of clarity, and also compels him to always act appropriately, given the psychological conditions and the nature of price movement. The most effective and functional trading belief that he can acquire is "anything can happen." Aside from the fact that it is the truth, it will act as a solid foundation for building every other belief and attitude that he needs to be a successful trader. Without that belief, his mind will automatically, and usually without his conscious awareness, cause him to avoid, block, or rationalize away any information that indicates the market may do something he hasn't accepted as possible." -Mark Douglas

A - Mark states that the most fundamental belief every trader must possess if they want to be a successful trader is the belief that "anything can happen" in the market. That means regardless of how much education, talent knowledge, experience the trader has; it will be of no use to the trader until they accept the cold hard fact that the outcome of every trade taken is uncertain and the market is unpredictable.

A - Chapter 6 was a wonderful read. I have noticed that in my own trading the more I internalize this belief that "anything can happen" in the market, the more confident I become as a trader. This thinking has freed me psychologically to focus on aspects of my trading that I can control, such as, risk management, exiting my trades and taking profits at levels that I have predetermined with the understanding that no matter how well I execute my plan there is no guaranteed outcome. 🙏

[jjgillis 5]

Chapter 6 Entry:

W - The most effective and functional trading belief that he can acquire is "anything can happen."

A - I know he also talks about being open to the opportunities as they come and I felt like these pieces combined into this idea of the market as this ever changing flow and we can't get caught up trying to force what we want to happen on it, instead we have to be open to taking what the market is giving us.

A - In my recent "turn around", I've just found myself less concerned about trying to "will" a trade in my favor and more just taking the information that the market is giving me and using that to control the things I can. For instance, just the other day, I took an ORB down on $NVDA, but because I'm more focused now on just taking what the market is giving me, when I saw signals that for me meant I would take a reversal, I closed out of the ORB trade and took the reversal because I was open to anything could happen and I just went with it.

Sorry I can't be there in-person anymore :(

[Susan 111]

Chapter 7 - The Traders Edge : Thinking in Probabilities

W - Being aware of uncertainty and understanding the nature of probabilities does not equate with an ability to actually function effectively from a probabilistic perspective.

A - Mark is telling us we have to move deeper than knowing about thinking in probabilities.  It must become a solid belief for us.  If it is a belief (like Mark discussed in the last chapter); our actions will come from that belief effortlessly.  

A - We need the proper beliefs to get to the highest level as traders.  Here is where I find myself... knowing all the information at a decent level and even starting to believe some of it.... I have to drill in and form these solid beliefs now to level up my trading psych game.  I looked ahead and the next few chapters are going to drill into beliefs.  He definitely knows his stuff & I 1000% agree that trading and everything we want has to start with the proper beliefs.  The solid foundation....Beliefs turn into thoughts turn into words turn into actions turn into your life.  

5 Fundamental Truths: (Beliefs we need to install deep into our brains so all decisions/trading stems from them)

1. Anything Can Happen

2. You dont need to know what is going to happen next in order to make money

3. There is a random distribution between wins & 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.

[Norma 33]

Chapter 7

W: “Thinking in probabilities can be difficult to master, because our minds don’t naturally process information in this manner. Quite the contrary, our minds cause us to perceive what we know, and what we know is part of our past, whereas, in the market, every moment is new and unique, even though there may be similarities to something that occurred in the past”.

A: Each trade is unique and different. It has nothing to do with previous trades; and even if they have similar patterns, they are not correlated to any other trade we have taken in the past. We should look at the market with open mind and each trade as a new experience. We should avoid trying to predict the outcomes based on false assumptions (perceptions) or unrelated past experiences.

[Miguel Angel 65]

Chapter 7 Entry:

W - "In my workshops, I always ask participants to resolve the following primary trading paradox: In what way does a trader have to learn how to be rigid and flexible at the same time? The answer is: 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. At this point, it probably goes without saying that 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 favor of what the market is offering." -Mark Douglas

A - Mark is telling us that we need trading rules to protect us from an environment that has very few rules, but when we break our rules and lose it's because we didn't fully trust our plan and believed that we knew what was going to happen next in the market. We need to stick to our rules and firmly accept through our actions that "anything can happen" in the market.

A - On September 1, 2022, I entered two trades on $AMD short when the price action took a downward trend, broke the pre-market low, broke all the moving averages, broke the LRC channel and strong reversal patterns appeared on multiple time frames. I entered my stop above the pre-market low at 81.54 and entered at 79.86. I exited the trade because I saw the price action break the previous 5-minute high and got out it even though my stop was never broken. I reentered again, but with a diminished risk to reward and removed my position when I saw the price action break the 20EMA on the 1-minute chart. And again, my 2nd stop was never broken. The price eventually hit 78.52 before reversing. I thought a lot about that trade and realized that I had not completely accepted the risk of what I was willing to spend funds on to find out if my trade would work or not without hesitation or regret. The truth of the matter is I thought I knew the price would reverse against me without allowing the trade to work. I was wrong. If had fully accepted the risk and the stop loss I had set, I would have been taking profits and not a loss. Nothing is ever wasted in life, so I paid the price to receive valuable insight into my trading. 🙏

[Dan F 73]

W- There are many things that can sideline you from thinking in macro vs micro while trading. Some of the forces that could change your macro view are personal things like your perception of what is going to be the outcome of the trade. Denial can also sway you from being in the macro mind especially when denial effects your subconscious. Another thing is getting to relax as the day rolls on with having to fight the occasional boredom.

 

A- Mark said something along the lines of how much you assume on what happens in a trade can be off equivalently in how wrong you end up on a trade.

 

A- If I were going to tackle this issue now, I would focus on being in the now on my trades. For me I say mentally to myself, focus on the exit for the trade that I’m about to pick. Then I would say to myself, so, ok now you’re going to set your entry.

[Marco 22]

I am sorry. But I can not join the meeting today. But anyway attached my 2 cents. Have a nice meeting!

 

W - In fact, the degree by which you think you know, assume you know, or in any way need to know what is going to happen next, is equal to the degree to which you will fail as a trader.

 

A – He wants to say, that we must not focus on the outcome of a single trade. We have to know our probabilities and they do not work after a single trade. They work after a bunch of trades. Like the casinos. They maybe also finish a day in red. But they know that after a year or a month, the probabilities work with them.

A – I am too focused on the outcome of a single trade. I get angry on myself when the trade lose. Thinking about what I did wrong. However, I did nothing wrong. I have to accept that the outcome of a single trade is almost accidently.

Edited September 8, 2022 by Marco

[kendal 10]

W: “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. In fact, the degree by which you think you know, assume you know, or in any way need to know what is going to happen next, is equal to the degree to which you will fail as a trader.” 

“When we accept in advance of an event that we don’t know how it will turn out, that acceptance has the effect of keeping our expectations neutral and open-ended.” 

A: Mark is saying we must let go of the need to know what is going to happen next or the need to be right on each trade. To be 100% honest, I struggle with letting my mind not weigh all the possibilities of what can happen or what I think will happen. It becomes my dominate thoughts and hinders me from entering a trade. I had this happen with NIO yesterday. I contemplated and hesitated too long, then came the extreme agony (as Mark calls it lol-but very true) after realizing I missed an opportunity because of self-doubt. I hope to work on these skills over the next chapters. I hope he gives exercises to practice in the next chapters. 

[WearyBear 12]

Chapter 6 and 7 had several huge "Aha moments for me. This morning, something clicked after a red set of trades, where I stuck like a robot to my strategy:

If I *KNOW* in my heart of hearts - as certain as I am that there is oxygen in the air and that the earth has gravity - that my strategy *WILL* be successful over time, then all I have to do is execute it precisely and without doubt or hesitation EVERY TIME a trade sets up as per the strategy. I cannot decide to skip trades or take too many days off etc. Why? Well, again: My strategy is my edge, my probability that I am more likely to be successful than not. Therefore, I MUST repeat my process as much as possible, as accurately as possible in order to increase my probability of being successful

 

 

[Susan 111]

Chapter 8 - Working with Beliefs

W - Our beliefs working in conjunction with the association & pain-avoidance mechanisms act as a force on our 5 senses, causing us to perceive, define, and interpret market info in a way that is consistent with what we expect.  What we expect is synonymous with what we believe or assume to be true.  Expectations are beliefs projected into some future moment

*If info being generated by the market is similar in quality, properties, or characteristics to something that is already in our minds, the two sets of info (outside &i nside) automatically become linked.  When the Connection is made, it triggers a state of mind (confidence, euphoria, fear, terror, disappointment, regret, etc).

* Our state of mind is always the absolute truth.  The problem is 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 in the market at any given moment.

A - Mark is saying our beliefs are the leading indicator. Our minds are constantly trying to connect patterns in every area of our life - to make sense of everything.  We do it in the market too - try to connect patterns so they are exactly as they were in prior charts because that makes sense to us. We have to expand our vision/mind to see more...we have to be willing to change our beliefs to do so...

A - If we "feel" happy; then we "are" happy.  If we "feel" the market is shit today; then the market is shit today.  If we feel we are consistently profitable; then I believe we will figure out a way to make it so... it all starts & stops within...people make tons of money & lose tons of money everyday in the market.  It is not the market; it is us & it begins with our beliefs from a psychological perspective.  

[Norma 33]

Chapter 8 – Working with beliefs

W: “They may look (or measure) exactly the same from one occurrence to the next, but the similarities are only on the surface. The undelaying 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. Our minds have an inherent design characteristic (the association mechanism) that can make this paradox difficult to deal with”.

A: we should always expect anything can happen; we need to accept we have not control of what’s coming next. There is no way for us to know what the other traders are thinking and what they are planning to do or what it’s their mental state. We need to be aware other traders’ decisions dictates the outcome of the patterns; traders are constantly making new decisions therefore we can’t assume there is a correlation between patterns, everything is done at that moment. There is no association or consensus among the trader’s decisions; each trader’s decision is independent from each other.

[Dan F 73]

Chapter 8

W- Throughout your trading career you run into many different tactics. Some tactics will work perfectly till they randomly do not work at all. Finding what is wrong is not an easy process whether it’s you or your group reviewing what’s wrong.

 

A- Bad trading practices can be reinforced by a false conformation

 

A- To apply this, you need to try to remove all outside biases from your analyses. This will help in creating the analyses that you have to inevitably write and test. The detail and relevance in your analyses are crucial because it means bad analyses in bad data out. It is important to look at your trades from all angles with a decent sample size. 

Edited September 14, 2022 by Dan F

[Miguel Angel 65]

Chapter 8 Entry:

W - "For your mind to be open to a true exchange of energy, you can't be in a state of knowing or believing that you already know what's going to happen next. When you are at peace with not knowing what's going to happen next, you can interact with the market from a perspective where you will be making yourself available to let the market tell you, from its perspective, what is likely to happen next. At that point, you will be in the best state of mind to spontaneously enter "the zone," where you are tapped into the "now moment opportunity flow." -Mark Douglas

A - Mark is giving us the greatest of hope that if we only stop believing and behaving in ways that we know what's going to happen next and we are truly in peace with that notion, we can achieve a state of present mindfulness that will allow us to enter "the zone" where we can tap into the "now moment opportunity flow".

A - Even though I am a long way from becoming a consistently profitable trader, our book club has empowered me in ways that I will always be grateful to our leaders Susan and Ed for allowing us to deep dive into "Trading In The Zone" and really absorb the lessons that Mark has to offer. My mindset has been changing in positive ways where I feel much more relaxed and ready as a trader, and the fear and anxiety of losing and trying to "know what's going to happen next" has slowly been dissipating from my life. For me this has been a great benefit in my trading journey. 🙏