In the world of trading, where movements in the market can make or break fortunes in moments, the mental and psychological aspects of trading become as important as the technical strategies being traded. 

Mark Douglas’s influential book, “The Disciplined Trader”, dives deep into the psychological aspect of trading. Not as well known as his second book, “Trading in the Zone”, his first book is still filled with a wealth of information that any trader can take lessons from and apply to their everyday trading. 

This comprehensive review aims to dissect and pick the best parts of book for you as a trader and assess the practical impact of his teachings on those of you that aspire to trade for a living, or trade for a living already.

Part 1: The Psychological Realm of Trading

At the heart of ‘The Disciplined Trader’ is an exploration of the trader’s psychology. Mark establishes early on that the biggest obstacles traders face are less about the unpredictability of the markets and more about their internal psychological battles. He identifies emotions like fear, greed, and the innate human need for certainty as the primary psychological barriers to successful trading. 

What most traders fail to realize is that these insidious emotions are what separate them from the traders out there that are successfully trading the exact same strategy they’re employing in the market. Ultimately, psychology makes up 80% of what takes a trader from unprofitable to consistently profitable.

Mark argues that these emotional responses, often deeply ingrained through social conditioning, their childhood, and personal experiences, can cloud judgment when trading. 

This leads traders to make decisions that are irrational and detrimental to their trading goals. He emphasizes that the journey to becoming a successful trader starts with recognizing and confronting these internal emotional responses, and without doing so will leave traders stuck in a loop of boom and bust.

Part 2: Discipline – The Core of Successful Trading

Perhaps the most compelling argument Mark presents is the critical role of discipline in trading. It sounds obvious, but discipline is something that a lot of traders struggle with, both seasoned, and brand new to trading. 

Discipline, according to Mark, is not merely adherence to a set of trading rules; it’s about developing a mental framework that enables traders to remain objective and clear-headed, unaffected by emotional turbulence. 

How To Achieve A High Level of Discipline According To Mark Douglas

Establishing a Solid Trading Plan

A comprehensive trading plan should detail not just the entry and exit strategies, but also the criteria for evaluating the risks and potential rewards of each trade. This plan acts as a failsafe, helping traders to navigate the markets methodically. 

Without a solid trading plan like the one we teach at Phantom Trading, traders will likely approach the market randomly and without structure, which can lead to gambling and inconsistency.

Consistency in Execution

Mark stresses the importance of consistency – not just in executing trades according to the plan, but also in maintaining a consistent emotional and psychological state. 

This consistency is what enables traders to evaluate their strategies objectively over time, learning from both successes and failures. Failure to maintain consistency in our psychology as traders can cause us to quickly spiral as we fight against ourselves and our emotions. 

This can lead to revenge trading, giving back profits after a huge win, or string or wins, or being fearful to enter the market. It can even manifest in FOMO, causing traders to force trades, or chase trades based on setups that have already happened and ran without them.

Mental Rehearsal and Visualization

A recurring theme in the book is the practice of mental rehearsal. Mark advocates for the visualization of trading scenarios, including the experience of losses, to mentally and emotionally prepare traders for the realities of the market. 

Another way that traders and practice the emotional aspect of trading is by doing things like backtesting, doing end of day reviews and visualizing taking setups that happened throughout the day, and of course, closing your eyes and visualizing wins and losses.

Part 3: Embracing Risk and Uncertainty

One of the most important sections of ‘The Disciplined Trader’ is Mark’s discussion on risk and uncertainty. He claims that successful traders are not those who have learned to predict the market accurately, but rather those who have learned to comfortably navigate the inherent uncertainty of trading.

If you’re an inexperienced trader you may have experienced this directly yourself. You’re afraid to enter, or you hit a string of losses that snowball because you can’t accept that you just don’t know what’s going to happen next. It can manifest it closing positions early, chasing trades, or worse violating your risk rules/deviating from your trading plan.

Mark encourages traders to shift their mindset from one of prediction and control to one of probability and acceptance. He argues that each trade is simply an opportunity with a certain probability of success and that the trader’s job is to manage these probabilities over time with discipline and without emotional attachment. Detatching from the outcome is a critical component of a successful trader’s psychology.

Part 4: The Impact of a Winning Attitude

Mark also delves into the concept of a winning attitude in trading. This involves focusing less on the profits of each individual trade and more on the process of trading correctly according to one’s plan. He emphasizes that a trader’s attitude should be centered on executing their strategy with precision and discipline, rather than on short-term gains or losses.

This shift in focus can lead to a significant transformation in a trader’s approach. When traders concentrate on the process and not just the outcomes, they develop a more balanced and sustainable trading style, which is more likely to result in long-term profitability.

Part 5: Practical Application of Mark Douglas’s Teachings

Mark doesn’t just leave readers without practical advice, he also offers several practical strategies for traders to develop the disciplined mindset he talks about in the book.

Practical Strategies from The Disciplined Trader

Record Keeping and Analysis

Keeping a detailed record of trades, not just the outcomes but also the thought process and emotional state during each trade, to learn from past actions. This is why utilizing a trade journal is absolutely critical, especially for new traders. This allows traders to be more acutely aware of their emotions and the reasons why they’re entering and exiting trades.

Setting Realistic Goals

Establishing realistic and achievable goals for each trading session, which focuses on adhering to the trading plan rather than making a certain amount of money. 

Remember, setting unrealistic expectations and failing to hit them can result in creating a situation where you experience cognitive dissonance, which can ultimately destroy ones confidence and motivation to continue trading.

Continuous Learning and Adaptation

Emphasizing the importance of continual learning and adapting one’s strategies in response to changing market conditions and personal growth. Learning doesn’t stop at just finishing a trading course, trading is a constant process of learning about one’s self and improving upon components of your trading plan.

Part 6: The Broader Implications for Your Trading in Practice

‘The Disciplined Trader’ has far-reaching implications for trading practices. Mark’s focus on psychology and discipline has influenced how traders, particularly in the retail sector, approach to the markets. His teachings have led to a greater emphasis on mental and emotional preparation, alongside the development of technical skills, rather than prioritizing just the technical side of trading.

Moreover, his work has contributed to a broader understanding of how human psychology interacts with the financial markets, offering a more holistic approach to trading education and practice, hence why he is regarded as one of the best people to learn from in the trading psychology space.

In Conclusion

In conclusion, ‘The Disciplined Trader’ by Mark Douglas stands as an incredibly important piece of work in the field of trading psychology. His insights into the internal challenges traders face, coupled with practical strategies for overcoming these challenges, make it an invaluable resource for anyone looking to succeed in the financial markets.

Mark’s work serves not just as a guide to better trading practices, but as a beacon, illuminating the path to a more disciplined, objective, and ultimately more successful trading career.

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Robert Castillo
@coldwaterfx
FX Trader & Analyst
Writer & Editor

Rob is a funded trader from Toronto, Canada, and has been trading currencies, commodities, stocks, and cryptocurrencies for over 7 years. Outside of trading, he enjoys making music, boxing, and riding motorcycles.