The Disciplined Trader: Developing Winning Attitudes by Mark Douglas

Below are the Important Points from The Disciplined Trader by Mark Douglas. Shared by Shirish

Intro

  • Reaching the level of success they desire as traders will require them to make at least some, if not many, changes in the way they perceive market action.
  • The markets have absolutely no power or control over you, no expectation of your behavior, and no regard for your welfare.
  • There are only a few traders who have come to the realization that they alone are completely responsible for the outcome of their actions.  Even fewer are those who have accept the psychological implications of that realization and know what to do about it.
  • The nature of the markets made it easy no to have to confront anything that otherwise might be perceived as a problem because the next trade always had the possibility of making everything else in one’s life seem irrelevant.
  • I CREATED MY LOSSES INSTEAD OF AVOIDING THEM SIMPLY BECAUSE I WAS TRYING TO AVOID THEM.
  • Unsuccessful Trading Behaviors
    1. Refusing to define a loss.
    2. Not liquidating a losing trade, even after you have acknowledged the trade’s potential is greatly diminished.
    3. Getting locked into a specific opinion or belief about market direction.  I.E. “I’m right, the market is wrong.”
    4. Focusing on price and the money
    5. Revenge-trading to get back at the market from what it took from you.
    6. Not reversing your position even when you clearly sense a change in market direction
    7. Not following the rules of the trading system.
    8. Planning for a move or feeling one building, then not trading it.
    9. Not acting on your instincts or intuition
    10. Establishing a consistent patter of trading success over a period of time, and then giving your winning back to the market in one or two trades.
    • Skills to be Acquired
      1. Learning the dynamics of goal achievement so you can focus on what you want, not what you fear
      2. Learning how to recognize the skills you need to progress as a trader and then stay focused on the development of those skills, INSTEAD OF THE MONEY, which is merely a by-product of your skills
      3. Learning how to adapt yourself to respond to fundamental changes in market conditions more readily.
      4. Identifying the amount of risk you are comfortable with
      5. Learning how to execute you trades immediately upon your perception of an opportunity.
      6. Learning how to let the market tell you how much is enough, instead of assessing the potential from your personal value system of how much is enough.
      7. Learning how to structure your beliefs to control your perception of market movement.
      8. Learning how to achieve and maintain a state of objectivity.
      9. Learning how to recognize “true” intuitive information and then learning how to act on it consistently.
    • First, you will need to learn how to release yourself from any feeling of inadequacy, guild, or shame.  Second, you will need to learn how to identify and repair the residual psychological damage caused by the emotional painful experiences because painful experiences have the potential to generate fear.
    • The intensity of your emotional discomfort and pain you experience as a trader is an excellent indication of how much you will have to change to trade without fear and be consistently successful.
  1. The Nature of the Trading Environment from a Psychological Perspective
    1. The Market is Always Right
      • Regardless of how wrong you think he may be, if the net result of the collective actions of all the traders participating is moving prices against your position, then they’re right and you’re the one who is losing money.  The market is never wrong in what it does; it just is.
    2. There is unlimited potential fro profit and loss
    3. Prices are in perpetual motion with no defined beginning or ending
      • Entering a trade will involve all your beliefs about opportunity in relationship to risk, missing out, needing a sure thing, and not being wrong.  Exiting a trade will involve all your beliefs about loss, greed, failure, and control.
      • If the player is losing consistently, he will need to confront his beliefs about loss and failure to quit playing altogether.
    4. The Market is an unstructured environment.
      • The typical trader will do most anything to avoid creating definition and rules because he does not want to take responsibility for the results of his trading.  If he knows exactly what he is going to do and under what conditions, then he would have something by which to measure his performance, thus making himself accountable to himself.
    5. The market environment, reasons are irrelevant
      • Most traders don’t know why they did what they did because most traders don’t plan their trades, thus eliminating any connection between themselves and the results of their trades.
    6. The three stages to becoming a successful trader
      • Your ability to execute your trades is a function of the amount of fear you generate or the lack of it.  Fear is always the result of your beliefs about the threatening nature of the environment.
      • Essentially, what you fear is not the markets but rather your inability to do what you need to do, when you need to do it, without the hesitation.
      • If you can’t execute your trades properly, even when you perceive the most perfect opportunity, it is because you have not released yourself from the pain contained in the memories of past trading experiences and because you still don’t trust yourself to act appropriately in any given set of conditions.
      • You were either immobilized by the fear of failure or you are struggling with a belief (value) system that say you don’t deserve the money.  Otherwise, you would have acted on your perception.
  1. Building a Framework for Understanding Ourselves
    1. Understanding the nature of the mental environment
    2. How memories, associations, and beliefs manage environmental information
      • What we are experiencing in any given moment is being shaped by what is already inside of us (memories, distinctions, associations, and beliefs), and what is already inside of us may not be remotely close to what the environment is offering in the way of experience.
      • People think of their beliefs and subsequent experiences as a fact of reality instead of a belief about reality.  This is natural because beliefs create a relationship with the environment that is best described as circular or a closed loop.
      • Beliefs allow us to tune into one channel of environmental information at a time so that we can learn about the nature of the environment through that one channel.
    3. Why we need to learn how to adapt
    4. The dynamics of goal achievement
      • Behavior that would fall into the “stupid mistake” category is most often the result of subconscious or forgotten beliefs that are in direct conflict with our intents
      • In each of these situations these traders certainly had developed effective, workable strategies to be successful–they definitely had some highly structured beliefs to support their expression as a trader.  However, what they haven’t done is identify and de-charge a whole host of other beliefs (both conscious and subconscious) that are in direct conflict with the endeavor of trading or making money as a trader.
    5. Managing mental energy
      • Personally, I believe that if we weren’t meant to keep on growing mentally (adding to who we are by transcending what we have already learned) and furthermore if we weren’t meant to direct that growth at a conscious level, then we would not have been given the ability to think, reason, and create.
      • You can wish and hope that the market will come back, or you cant cut your loss and make yourself ready to take the next opportunity.
    6. Techniques for effecting change
      • It is important for you to understand that beliefs cannot be destroyed; once we have formed one, it will be with us for the rest of our lives.
      • Asking yourself Questions pg 170/171
      • Affirmations pg 178
  1. How to Become a Disciplined Trader
    1. The psychology of price movement
      • The market prices flow back and forth like a tug of war between those who believe and expect the market to go up–and consequently buy–and those that believe the market will go lower–and consequently sell.
      • This means for one side, in their minds, that “the market” will make them winners; their beliefs will be validated.  All the traders on the other side, however, will be made losers; they will feel the market took something away from them and will naturally be disappointed.
    2. The steps to success
      • Once you trust yourself to always do what needs to be done, there will be nothing to fear because the markets won’t be able to do anything to you, as a result of your inability to respond appropriately.
      • Second, by passing up other opportunities that you are not an expert at yet, you will be releasing yourself from any compelling desire to trade.  Any compelling behavior is usually the result of some fear.
      • Staying focused on what you need to learn–> Deal with losses–> Become an expert at just one market behavior–> Learning how to execute a trading system flawlessly–> Learn to think in probabilities–> Learn to be objective–> Learn to monitor yourself

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