Trading in the Zone Book Review
Author: Mark Douglas
Subject: Trading Psychology
Audiobook: 8 hrs and 7 mins
First Published: 2000
Who’s it for: All new traders or anyone struggling to ‘get out of their own way’ whilst trading
Reputation: A classic. Widely considered essential reading for new traders
The Good: The ‘bible’ on trading psychology
The Bad: Could probably be 50% shorter and get the message across
Recommendation: Must Read
Buy it HERE
Trading in the Zone Book Review: Trading in the Zone by Mark Douglas is widely regarded by traders of all types as the ‘bible’ on trading psychology. Many of the points that Douglas makes in this seminal work are now truisms amongst the trading community. The importance of the work alone makes Trading in the Zone a must read.
However, it is not without its flaws. Whilst every trader should read this book, they should also be warned: Douglas appears to live by the maxim “why use one word when you could use one thousand!”!
Alongside the invaluable insight into trader psychology you can expect long winded metaphors (loooooooooong winded) and what, at first glance at least, appears to be detours of dubious utility into general human psychology. Some of these pay off later in the book. Others, well…
If you are as self-regarding as I am then you may like to think of yourself as an important and busy person. If that is the case then I would recommend considering the following: Read maybe the first five to seven chapters and the last chapter; the fluff is mostly in the middle.
If the book holds your attention after the first five chapters and you like to get detail on your subjects then Trading in the Zone reads well and is interesting, even as it detours and meanders. But if you are reading this to glean the insight and move on, then you may wish to skip the marshmallowy middle. In the central portion on ‘beliefs’ Douglas genuinely seems to go for chapters at a time without even using the word trading…
Now, this criticism aside, there is absolutely no doubt that Trading in the Zone is one of the most important books ever written on trading psychology and indeed on trading itself.
95% of retail traders are purported to be smashed on the rocks of the merciless markets, losing money before quitting trading in disgust. And it has become increasingly clear in recent years that this is largely down to poor trading psychology and the poor money management that comes with it. If you apply the lessons you will learn in the pages of this book then your money management will undoubtedly improve. Then your trading consistency will improve and with that not only your chance of staying in this game long enough to make a profit, but the enjoyment and fulfilment that come with a job well done.
The main lesson in the book is that the mistakes traders make are often built on applying deep-rooted emotional issues to our interactions with the market. However, as Douglas makes abundantly clear, the market doesn’t care about you, it doesn’t even know you exist. So this is a nonsense and we must stop it.
As an example, from childhood onwards we are used to experiencing failure and the hurt that goes with it. When we make a poor trade that feels like a failure and summons up those negative emotions. In order to avoid these negative feelings we may make the mistake of chasing the trade…and losing even more money.
The premise of the book is that we need to come to a point where we can trade free of this psychological baggage – we should see that losing trade as nothing more than a probabilistic outcome that went against our position. We need to see that there was no failure on our behalf and we should be able to observe the market at any given moment with no thought as to whether we are in the trade positively, negatively or not at all. The market just presents us with information about itself and we are there to make trading decisions based on this information, dispassionately and therefore, hopefully, make a profit.
Douglas summarises this in his 5 famous ‘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
As traders, if we accept these truths, leave our emotional baggage at the door when we come to our trading computer and trade dispassionately, without fear or greed, then we may trade with consistency and profit.
Once we have our psychology sorted, Douglas believes, it is merely a case of choosing a trading system that has an ‘edge’ – a set of variables that puts the probabilistic outcome in our favour. As he says, you can make your own system and confirm with backtesting or choose one from a book or one of the many trading system purveyors online: it doesn’t matter what your edge is.
Choose your edge, trade your edge and over time the random distribution will fall in your favour. Your ‘edge’ makes you the Casino – eventually the House Always Wins.
Where we fall down as traders is in expecting to know the outcome of this specific trade – there is no way we can know! In the same way that the Casino has no idea what will happen on any given spin of the roulette wheel. But, over 100 trades or 1000 trades, with an edge in our favour, if we trade without fear or greed, we can make money trading the markets.
It is that simple.
Trading in the Zone Book Review: Final Thoughts
Although it seems overly long for its relatively simple message, Trading in the Zone is the distillation of decades of wisdom built up over Douglas’ trading career. When published in 2000 it articulated clearly for the first time a number of thoughts that successful traders had espoused but that the trading community had until that moment not seen codified in one place. This secured it a spot on most traders book shelf and it should be on yours too.
Trading in the Zone by Mark Douglas comes with a ‘Must Read’ recommendation from Two Blokes Trading and you can pick up a copy here.
We hope you enjoyed this Trading in the Zone book review – Happy trading!