Tuesday, October 28, 2008

Five Fundamental Truths of Trading

  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.

Mechanical Stage

  1. Build the self-trust necessary to operate in an unlimited environment.
  2. Learn to flawlessly execute a trading system.
  3. Train your mind to think in probabilities (the 5 fundamental truths).
  4. Create a strong, unshakable belief in your consistency as a trader.

Principles of Consistency

  1. I objectively identify my edges.
  2. I predefine the risk of every trade.
  3. I completely accept risk or I am willing to let go of the trade.
  4. I act on my edges without reservation or hesitation.
  5. I pay myself as the market makes money available to me.
  6. I continually monitor my susceptibility for making errors.
  7. I understand the absolute necessity of these principles of consistent success and, therefore, I never violate them.

The above is extracted from the book , Trading in the Zone by Mark Douglas.

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