Sunday, 19 October 2014

Trading in the zone

This weekend I read the book "trading in the zone". To be honest, I think it would be possible to write the book with less pages. It's not a bad one, but some chapters are really hard to read. Especially the chapter 10 "the impact of beliefs on trading" is a bit philosophical. In general I like the ideas and you can summarize it to this facts (you find on page 185):

  1. I objectively identify my edges.
  2. I predefine the risk of every trade.
  3. I completely accept the risk or I am willing to let go 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.

Some readers of this blog already mentioned it. First of all I have to proof my edge. So far it's missing. I just guessed that my strategies work. The author suggests a risk-to-reward of at least 3, which means you are only risking one dollar for every three dollars of profit potential. I don't know if it works similar at sports trading, but it seems an issue I have to consider. At the moment I probably don't reach this value. If I take a look at Sultan's figures, he makes big profits despite a "low" strike rate of 40%. That's a sign, that he also works with high risk-to-reward-ratios.

I recognized while reading the book that I predefine my risk, but I am not willing to accept it. That's a clear sign of overstaking. I can remember when Sultan lowered his stakes. Suddenly his results started to improve. He became self confident because he identified a real edge. After some months of being profitable he raised his stakes and it still worked.

After reading the book, I know that is not enough to halve the stakes. I have to test the strategies with amounts which really don't hurt. Only with the proof that there is a real edge, I can trade with the self confidence you need to be successful.

Mark Douglas, the author of the book, also mentioned that you have to set small targets. He wanted to run five miles, but had no chance in the beginning. So he started with smaller stages. I will do the same. The only target for this year is to test the strategies with small amounts. Instead of 1% of the capital per trade, I will lower it to 0.1%. So it's quiet easy to scale up the results to see, where I would land with normal staking.


  1. Last time I advice you exactly the same think about your stake and strategy but you refuse as not suitable for you remember?

    1. Yes, I remember :-). Sometimes you have to make your own experience. The mindset was in the wrong belief (how the author says) after the scam. It needs a lot of time and stamina to reach the targets. It's important to make small steps, and the first is to proof the edge. If I can't find it, it's impossible to make money in the long run. At this stage is completely irrelevant how much profit you make.

  2. This is very good risk-to-reward ratio(1 for 3). I suggest you test it for a while, its not reallythat hard, you just have to know where are exit points before you enter evety trade. So, out of 10 trades, if you have 3 succsessful and 7 unsuccsessful you are in profit. We can try some markets together if you are interested

    1. Three of ten would not be enough... it's only 30% (3/10). Should be three of nine (33%). Sultan makes four of ten (40%).

      It's part of the next stage in our project. We have to find the best mix between hit rate, risk-/reward-ratio, the right entries/exits and so on. After the scam I am not interested anymore to work together with people I don't know personally. I hope you understand. Thanks for the offer.