Traders invariably harbor the fervent idea of striking it rich in the currency market. Facing significant fluctuations in account funds and the ups and downs on the trading charts, it is extremely difficult to remain unshaken. However, on a deeper level, trading is essentially a psychological game.
What kind of mindset should one maintain in trading? Mark Douglas provides guidance for us. As one of the best trading psychology coaches of his time, he is dedicated to helping traders achieve consistent profits. His book, "Trading in the Zone," remains one of the must-read books for traders to this day. This master has many important views on trading psychology that are still worth learning from. Let's take a look at his 12 most important trading rules and how to apply them to actual trading.
1. Correctly Compensate for the "Profit Gap"
Mark Douglas often mentions the concept of the "profit gap," which actually refers to the "gap" that may appear between the potential profits that can be obtained by implementing a trading method and your actual trading profits.
Mark Douglas believes that the key to the "profit gap" is that traders always try to learn more market knowledge, change trading methods, or spend more time sitting in front of the computer, etc., hoping to compensate for the profit gap in this way. However, what they really need to do is to understand themselves and how to interact with the market. Essentially, to compensate for the profit gap, they need to learn the "appropriate psychological skills" to execute trading methods and then maximize the use of these methods to fill the profit gap.
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Anyone can make a lot of money in a short time by just opening a trading platform and pressing a few buttons if they have a bit of luck.
But this also hides a problem: a trader who has not yet formed their own trading skills will transition from thinking "making a profit is easy" to the fluke mentality of "relying on trading for a living is actually not difficult." Soon, they are on the path to losses, even faster than when they were making profits.
In summary, do not consider yourself a profitable trader just because of a profitable trade. This is a huge pitfall.
2. Psychological Skills are the Key to TradingMark Douglas reminds people: Even with a high-profitability method, the correct psychological skills are still needed to properly execute that method. If you do not have the correct psychological skills, then a successful trading strategy can also lead to losses.
Remember, no matter how advantageous your technical approach is, to achieve profitability, you also need the ability to grasp what should be done and what should not be done.
3. Technical price patterns cannot predict what will happen next in the market
Any technical method, including price fluctuations, cannot predict what the market will become next. Mark Douglas once said that they can only help increase the success rate of a series of transactions. The results of transactions caused by any specific signal are random, in other words, the nature of trading is random.
4. Accept the randomness of trading results to make trading more sustainable
The advantage that technical methods and patterns give to traders is similar to the advantage that casinos have over gamblers. In the long run, casinos are always the biggest winners. Technical methods help us find patterns of behavior among traders in the market, but they cannot guarantee that the results will always match these patterns.
You must understand the randomness and uniqueness of each transaction result, grasp yourself, and not dwell on transactions that have ended, in order to maintain stable profitability in the long term.
5. Think about possibilities, not certainty
The occurrence of profits and losses is completely random. Traders who can think about problems in terms of "possibilities" do not expect a specific transaction to generate profits, so they suffer less psychological impact.Learn to think about possibilities, which allows you to no longer expect results from a single transaction, but instead focus on the overall trading results over a period of time.
6. Be alert to changes in market sentiment
Traders often forget that all market prices are driven by participants. Price fluctuations actually reflect the expectations or predictions of all market participants, and then they will analyze market prices.
There are always people entering or leaving the market, thus forming market fluctuations. If you go long, there will also be people going short, making the results of transactions more random. These are things you cannot control. Your trading strategy only increases the probability of profit in a series of transactions, and it cannot guarantee the results of each transaction.
7. Relax your mind
When executing transactions, do not have psychological biases, and avoid the thought of "this transaction is sure to make a profit." If you have expectations of profit from a transaction, emotions will follow and fluctuate.
As mentioned above, the result of a transaction is always uncontrollable, and it is very insignificant in the context of a period of transactions.
8. Change your view of the market and learn to be a professional trader
A professional trader does not worry about "will this transaction be successful?" What is really considered is the risk: "If the market is unfavorable to me, what is the maximum loss I can bear?"
In profitable transactions, traders will continuously pay attention to signs of market pullbacks and exit in time before the market changes, even if the profit is lower than expected.9. Trading is not about right or wrong
Trading has nothing to do with being right or wrong; it's just a matter of probability. For example, trading signals cannot prove whether they are right or wrong, they only indicate the probability that may be in your favor. By ignoring the issue of right or wrong, you won't always feel disappointed, because a loss only indicates that in the same trade, most traders hold a different view from you.
If you are obsessed with being right or wrong, even if the market develops in a direction that is unfavorable to you, you will still stick to your own views just to prove that your decision is correct. This is a big taboo for traders. Because you are trading based on expectations, not based on market reality.
10. Paper trading teaches you how to think
Why do traders always make a profit in paper trading, but start to lose money as soon as they start real trading? This is because the paper account does not involve their own funds, and traders usually do not have a lot of emotional fluctuations. They naturally focus on the market trend. This is the most important thing in trading.
If you can't understand your own heavy losses, then use the paper account again and pay attention to your mental state.
11. Choose trades with a high probability of profit
Mark Douglas said that the first thing traders need to learn is how to increase their probability of profit.
But remember, a high probability of profit in trading means that the number of profits is more than the number of losses in a series of trades. A high probability of profit does not guarantee that you will ultimately make a profit, and achieving this goal also requires the necessary psychological skills.
Trading is not an exact science game, but a mental exercise!
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