Thursday, March 22, 2007

Must Read

I wanted to share an exerpt from a book I'm currently reading by Mark Douglas titled "Trading In The Zone; Master The Market With Confidence, Discipline, And A Winning Attitude." The author is attempting to reprogram the reader so as to begin thinking in a way that will lead to successful trading. One excerpt that stands out for me deals with eliminating emotional risk.
"Remember, the market is always communicating in probabilities. A probabilistic mind-set pertaining to trading consists of five fundamental truths.
  1. Anything can happen.
  2. You don't need to know what is going to happen next in order to make money.
  3. There is a random distribution between wins and 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.
What the author is trying to get across to us is that: "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...Any expectation about the market's behavior that is specific, well-defined, or rigid - instead of being neutral and open-ended - is unrealistic and potentially damaging. I define an unrealistic expectation as one that does not correspond with the possibilities available from the market's perspective. If each moment in the market is unique, and anything is possible, than any expectation that does not reflect these boundary-less characteristics is unrealistic."
There are some great points brought up and I highly recommend giving this book a read. Thanks to Mark Douglas for the pointers. Go check out "Trading in the Zone."

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