Traders with practical experience will inevitably encounter issues related to trading psychology to varying degrees.

I have been trading for over a decade and have found that trading techniques are merely the most basic threshold; the real challenge lies in the psychology of trading.

Many of the questions people consult me about are related to how to improve their trading cognition or execution ability. In fact, self-reflection during losses is the most profound method, but it is also the least efficient and the most costly. Therefore, today I would like to recommend a book that I have read many times myself—"Trading in the Zone" by Mark Douglas.

This book systematically addresses the psychological issues that traders face and provides solutions. The entire book is explained from the simple to the complex, and no matter how long you have been trading or what kind of problems you encounter, when reading this book, you will have the feeling of "this sentence speaks to my heart" or "this problem is exactly about me," and you can find methods to solve the problems in the book.

Today, I will take you through a review of this book, organizing what I consider to be the most essential content, and if you have the time, I still recommend that you read the original work.

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1. About the Author

Let's briefly discuss the author of the book.

Mark Douglas has 30 years of trading experience. He began his financial investment career in 1978 and joined Merrill Lynch in 1981, where he traded on the Chicago Exchange.

"Trading in the Zone" was written by Mark after 17 years of trading, compiling his trading experiences and insights gained from being a trading psychology coach for traders in Chicago. The book is quite popular worldwide and has received much acclaim.

The author stated in the preface, "If your thinking is right, you can't run out of money." Having experienced the process from failure to profitability myself, I understand that once the correct mindset is in place, making profits from trading becomes a very natural and easy thing. However, to truly comprehend the correct thinking and logic, there is a certain cost to pay. Learning is the most cost-effective and efficient way to change one's mindset, which is why I recommend this book to you all.2. When the mindset is right, there's no end to the money to be made.

"Traders who have confidence in their trading, who believe in themselves without hesitation, and who do the right things will succeed."

The market is capricious and ever-changing. A breakout pattern may sometimes work, sometimes fail, sometimes move 100 points, and sometimes 1000 points. These fluctuations and uncertainties create pressure and fear within us, preventing us from executing with 100% certainty.

Someone once asked me, if we calculate trading by flipping a coin, shouldn't the results be distributed around 50%, then why do so many people suffer significant losses?

It's because trading is mixed with too many psychological factors and human weaknesses, which lead to the majority of people suffering significant losses.

In my interactions with most online friends, I've found that about 70% of people can understand the market trends, but perhaps less than 30% can actually do well. Moreover, most people realize in retrospect that if they had executed their trading strategies with 100% adherence, they would not have suffered significant losses; no matter what, the results would be better than their current trading outcomes.

So possessing trading skills is not difficult; having confidence in those skills, having faith in trading, and being able to execute them without hesitation is the most challenging part.

How can we change our way of thinking and have confidence in our trading? Next, I will excerpt viewpoints from books to slowly guide everyone to see the issues in their trading thoughts and engage in some deep thinking together.

Note: Today's article involves a lot of deep thinking content, requiring everyone to break their preconceived notions, calm down, and think and summarize carefully. I hope everyone can be patient.

3. Rethinking Trading Risks"Most traders have no idea what successful traders mean by taking risks when they consider risk. The most skilled traders not only dare to take risks, but they learn to accept and embrace them. Because they engage in trading, they assume they are taking risks. There is a significant psychological gap between this assumption and fully accepting the inherent risks of every trade, and when you fully accept risk, it has a profound impact on your profitability."

Trading is inherently risky, and this is not up for debate. Many people consider themselves risk-takers and take pride in taking risks, but when real risks materialize, most people emotionally experience pain, frustration, anger, fear, anxiety, and even take evasive actions, such as being afraid to open positions or unwilling to cut losses.

Humans are a paradoxical existence; on one hand, they believe they have a spirit of adventure, enjoy heavy betting, and even go all-in, while on the other hand, they do not want to accept the consequences of high risks, fear risks, and avoid them.

Therefore, correctly understanding risk is a very important matter. I have also shared my psychological techniques for accepting risk:

Everything in this world is an equivalent exchange, and the essence of trading is to exchange one thing for another. Originally, trading referred to the buying and selling of goods, and now it is applied to the financial market, where its essence remains unchanged.

However, in the financial market, goods are replaced by virtual ones. For example, you exchange money for stocks, and you can enjoy the profits brought by the rise in stock prices, but you also have to bear the risk that the stock price may fall. So what you are doing is exchanging risk for profit.

Therefore, when we trade, if we do not take risks, we cannot exchange for profits. What we need to do is not to avoid risks, but to exchange for greater profits under controllable risk conditions.

Learning to accept risk is the most important skill in trading. Only after 100% accepting and recognizing risk from the bottom of your heart will the market no longer produce information and results that you define as painful and unacceptable.

When you truly accept risk, your performance will be: no longer afraid.

Execute trades according to trading rules, and when encountering risks, admit losses without hesitation, end trades, and do not hesitate or feel sad emotionally, and do not lose trading discipline due to fear of risk.The risks in trading are inevitable; they are the market's feedback to traders, the root cause of their pain. Yet the market is indifferent and emotionless, without feelings or memory; it never cares about the psychological harm it might cause you. Why bother to engage in a masochistic love affair with the market?

4. The uncertainty of each trading outcome

"No matter how well you understand market behavior and how skilled you are at analysis, what you learn will never be enough to predict all the ways the market might trick you into making mistakes or incurring losses. The harsh reality of trading is that the outcome of each trade is uncertain. Unless you learn to fully accept the possibility of uncertain trading outcomes, you will consciously or unconsciously avoid what you define as painful possibilities. In this process, you will encounter many costly mistakes that you create yourself."

The book cites an example like this:

A structural pattern appears the same to us, but the people involved in the trade and their actions are different.

Suppose 10,000 people are involved in trading. Due to changes in the fundamentals, some will choose a different trade from the last time. Some, having made profits in previous trades, become optimistic and choose more aggressive trades here.

Others, having suffered losses in previous trades, feel fearful and opt for more conservative positions here, or even give up trading altogether.

There might even be traders who were involved last time but are asleep this time, missing the opportunity.

With 10,000 people trading, there are 10,000 different possibilities from the last time. The market will never be exactly the same as it was before, and these 10,000 different possibilities will lead to an outcome that is always unpredictable and uncertain.

Even if we understand all the technical aspects and all the fundamentals, we cannot determine how the people we trade with will act, and thus we cannot know the outcome of the trade.In the market, anything can happen, and the outcome of every trade is uncertain.

To summarize: At this point, our trading mindset should undergo a transformation.

From a technical trading perspective, the outcome of each trade is uncertain, and we should let go of our obsession with predicting the market, as well as the hope that this particular trade must be correct.

We must accept the existence of risk from the bottom of our hearts, so that the risks and stop losses in trading will not bring negative emotional impacts to ourselves, will not cause fear, indecision, or recklessness, which is conducive to the execution of trades. This is a complete shift in thinking that requires everyone to think deeply.

The ideas mentioned above may differ from your deep-seated cognition, and may even cause conflict. Don't rush to deny them; you can ponder them several times, and then we will continue with the following content.

5. Define risk in advance, set stop losses

"The market's most fundamental characteristic is that its modes of expression are almost unlimited."

"The market can exhibit any behavior at almost any time, which seems obvious, especially to those who have experienced abrupt and violent fluctuations in market prices. If traders truly believe that anything can happen at any time, there should be a significant reduction in losers and an increase in winners."

There are three forces in the market at the same time: the first believes that the price is low and buys long; the second believes that the price is high and sells short; the third is a potential force, always ready to enter the market.

Because most people trade without discipline and in an occasional, random manner, extreme market conditions can occur at any time and in any market, and anything can happen. As we have also discussed above, trading is uncertain and always accompanied by risk.Thus, the author of the book repeatedly emphasizes that when making transactions, one must pre-determine the risk, which means setting a stop-loss.

Before each entry into a trade, define the risk value for oneself, and when the market tells us that this transaction is not working, cut losses without hesitation. The other side of defining risk is systematically and methodically taking profits according to the rules of money management when the market trend aligns with expectations.

"Not pre-determining risk, not cutting losses, and not systematically taking profits are the three most common and usually the most costly trading mistakes you can make."

Here, it is still hoped that everyone will temporarily step away from this article and recall whether you have ever encountered sudden, drastic market changes without warning? Do you acknowledge the uncertainty of the outcome of each trade? Do you acknowledge the unpredictability of market trends? Do you acknowledge the need to define risk before every trade?

If consensus has been formed on these points, then let's move on to the most important part of the book: how to achieve profitability?

6. Thinking about the advantages of trading from a probabilistic perspective

"If you can use probability and have a large enough sample size, then things with random outcomes can produce consistent results, which is something that most traders find difficult to understand. The most skilled traders treat trading as a numbers game, similar to how casinos and professional gamblers handle gambling."

The book talks about the rules of casino blackjack, where the casino requires gamblers to follow the rules, and the casino has about a 4.5% advantage over the gamblers. As long as the sample is large enough and the number of bets is sufficient, the casino can earn a net profit of 4.5 cents for every $1 bet.

For the casino, the outcome of each hand of cards for the gambler is uncertain and unpredictable. But from an overall perspective, a series of many hands of cards, the results are quite certain and predictable, which is attributed to the rules of the blackjack game.

Returning to trading, although I am reluctant to compare trading to gambling, there are indeed many similarities between the two.Traders should also devise a trading system with a profit advantage. This system can be self-created, copied from others, or learned from experience. The book does not mention issues related to trading techniques, so I would like to add two minor points about the trading system: the details should be refined, and the categories should be clear, which makes it easier to execute. Additionally, conducting some back-testing verifications can help understand the extent of the profit advantage of the trading system, which is what sets oneself apart from average traders.

"Casino owners do not attempt to predict the outcome of each individual event because there are too many unknown variables in each type of gambling, making predictions very difficult, and they may not necessarily lead to consistent results. Casino owners know that as long as they maintain an advantage in their favor, with a large enough sample of events, their advantage will have many opportunities to manifest."

The market is constantly in motion, providing us with a continuous stream of trading opportunities. We have enough chances to trade, which means we have enough samples to leverage the advantages of our trading system. By treating ourselves as the house, there is always money to be made in the market.

We have discussed trading risks, the uncertainty of trends and single trade outcomes, the necessity of stop losses, and how to use probability advantages to achieve trading profits. Finally, let's share an important viewpoint from the book.

7. Managing Expectations

"Unrealistic expectations can be harmful because they affect the way we perceive information."

The book expresses the following viewpoints on managing expectations:

A: Unmet expectations can lead to the most severe unhappiness and emotional pain.

B: When the market trend develops in line with our expectations and our orders are profitable, we feel joy and satisfaction.In fact, in both of these situations, our mindset is not entirely objective and neutral, and it will more or less affect our judgment of market information. Every rise and fall in the market, as well as different patterns, is merely the market conveying information, telling us its stance without carrying positive or negative energy. However, the emotions behind our expectations will drive us to view market information in a way that aligns with our expectations. What we see is a more optimistic or pessimistic trend, which will affect the execution of trades and profitability.

Successful traders are steadfast in their rules and flexible in their expectations; unsuccessful traders are flexible in their rules but rigid in their expectations. An additional small point: by lowering the expectation of returns, one can trade with smaller positions, have a longer profit cycle, achieve a better mindset, and make trading simpler.

Today, I've extracted the most direct and important content from the book that affects trading and helps achieve profitability, but it's only a small part of it. Today's content is just a summary of the book's viewpoints without too much of my personal opinion. However, from a practical standpoint, I highly approve of the author's trading philosophy.

The book contains more detailed explanations about trading psychology, with many examples that can help everyone understand the issues related to trading psychology more clearly. It also explains the process and methods of changing trading psychology, but due to space limitations, I can't elaborate on all of them here. So, I encourage everyone to read this book, as I believe it will be of great help.