Mark Douglas: 7 Steps To Become A Profitable Trader
Are you doing these 7 things?
Today at a glance:
The best trading psychology book
7 steps & commentary from Mark Douglas
Further commentary from me
Let’s dive in:
If you want to become a profitable trader, The Disciplined Trader by Mark Douglas is a must read.
Here are the 7 steps every trader needs to take to reach success, in the eyes of Douglas (as outlined in chapter 16 of the book):
Step 1: Staying Focused On What You Need To Learn
Most traders are focused on making money. The best traders are the ones who recognize they need to learn skills and mastering those, knowing that the by-product of mastering & applying those skills is money.
As you conduct your post trade analysis this weekend, ask yourself:
What am I doing well? (Do more of this!)
What am I doing poorly? (Do less of this!)
Seeing where you’re excelling vs. where you’re lagging will help you bridge the skill gap between your best and your worst. Once you have an idea, you can create a focused plan of attack.
Step 2: Dealing With Losses
The best traders have two separate rules when it comes to dealing with losses. They are:
They predefine what a loss looks like and means in terms of their setup, account equity, and pattern at hand.
They execute losing trades immediately on the perception that they exist.
Majority of traders (especially the ones that fail) do not commit to both rules, causing long term emotional pain & outsized losses.
Learning how to be a good loser is one of the only paths to becoming a consistent winner (in all areas of life, not just the market).
Step 3: Becoming An Expert At Just One Market Behavior
You don’t have to master every single setup to become extremely profitable. In fact, the lack centralized of focus on one specific setup is a large reason many people are expert market analysts but poor traders.
Information overload is real — be extremely selective on what you study and what you execute upon.
For me, I’ve taken a deep dive into the High Volume Close Setup. To help my learning and application of this strategy, I’ve created a free 5-day email course that outlines the exact setup along with deep dives into real world examples. You can get access to that by clicking here.
Step 4: Learning How To Execute A Trading System Flawlessly
A deep lesson to learn in the market is that executing a system flawlessly means you will still take losses. No system is perfect, but you can perfectly execute a system.
This means you must begin taking every signal the system registers, and avoid trying to outguess your system. Don’t try to predict which ones will work and which ones won’t, simply execute.
As I continue to work myself out of the drawdown I suffered in February, this is a mental model/mindset that I’m constantly reminding myself of throughout my daily and weekly work. Execute when the system gives a signal, live with the results.
I know I will come out on top after a large enough sample size is gathered!
Step 5: Learning To Think In Probabilities
This mindset is crucial for proper execution of the system in place. If you can learn to think in probabilities, losses become less personal. Wins become less of a high. What you start to do is view your trading as a machine, with defined inputs and outputs. Over time, this mindset allows a new level of execution and detachment from results.
Not much more to add here, this goes hand in hand with the previous step, learning how to execute a trading system flawlessly.
Step 6: Learning To Be Objective
It’s difficult as humans to be objective, but the second you allow your mind to objectively view the market, you will be able to better understand what it is telling you in terms of your system. Your intuition and experience will take you to new heights many traders never reach because of their lack of objectivity.
As best as you can, try to remove the amount of inputs that flow into your decision-making process. This means unfollowing people on twitter, reducing the amount of market content you consume, and focusing solely on the most important information that you have studied day in and day out.
Easier said than done, but a major brick in the foundation of long-term trading success.
Step 7: Learning To Monitor Yourself
And, last but not least, you must learn how to monitor yourself. This means conduct your post trade analysis, learn the influences that make you react a certain way, and be honest with yourself about your shortcomings as a trader.
After all, the more honest you are with yourself, the better trader you’ll be.
TL;DR: The 7 Steps To Becoming A Successful Trader In The Eyes of Mark Douglas
Staying Focused On What You Need To Learn
Dealing With Losses
Becoming An Expert At Just One Market Behavior
Learning How To Execute A Trading System Flawlessly
Learning To Think In Probabilities
Learning To Be Objective
Learning To Monitor Yourself
I’ve committed to mastering each one of these steps, no matter how long it takes me.
Will you?
Great. Thanks.