If you’ve been trading for a while, I’m sure you’ve heard about the book Trading in the Zone by the late Mark Douglas. This post is about the 5 fundamental truths of trading which he wrote about in his book.
Mark Douglas wrote about learning to think in probabilities when it comes to dealing with a probabilistic environment such as trading… and that a probabilistic mindset (with regards to trading) consists 5 five fundamental truths which is discussed next.
The 5 Fundamental Truths of Trading from Trading in the Zone:
- “Anything can happen.”
The market can’t be predicted with certainty. There are always forces out of your control that can influence the market. No matter how good a trade looks, you can’t be certain of the outcome…. anything can happen.
2. “You don’t need to know what is going to happen next in order to make money.”
Certainty in markets are not necessary for you to make money. Even if you have a very high win rate, you still can’t predict the outcome of the trade you are about to take. But you can trust your edge and execute it knowing that it will deliver over time.
3. “There is a random distribution between wins and losses for any given set of variables that define and edge.”
In the very short term (your current trade) it’s not easy to predict the profitability of your strategy, but over a long period of time (large sample of trades) your losers vs winners will average out to be profitable… this is assuming you are trading with an edge and sticking to your strategy.
4. “An edge is nothing more than an indication of a higher probability of one thing happening over another.”
If all the boxes of your strategy is ticked, you take the trade because you know your edge is there which means probability is in your favor. Will it work out? This you don’t know, because there’s always the chance of the trade not working. Don’t hope, dream or drift from your strategy. Keep playing your edge.
5. “Every moment in the market is unique.”
If every moment in the market is unique, then you can’t predict with 100% certainty the outcome of your next trade, or what will happen next. This comes back to trusting your edge and playing your edge (through all the uncertainty) with consistency rather than trying to predict.
Finally:
I hope this post is of some help to you on your journey to become a successful trader. But if you are really serious about trading, I suggest getting , studying and applying the principles in Trading in the Zone… it’s truly a classic and I’m sure it has helped many traders… I’m sure it can help you too.
Thanks so much for reading. Hope you and your loved ones are doing well.
Thanks and Regards,
Trading SOS SOS