must learn to trust the competitive advantage you have. Competitive advantage means a higher likelihood of a favorable outcome. The higher the belief in one's own strength, the more successful the trade will be. This book is designed to give you an understanding of your own actions and the nature of trading, which will make working in the market easier and calmer, as if you were just watching the price movement and reflecting on its behavior.

In order to figure out how much you think as a trader, try answering the questions below.

Answers to them, by definition, cannot be right or wrong. How you answer them will be an indication of the degree to which your system of thought is in line with the requirements that the thinking of a person who is going to get the most out of trading must meet.

Mark Douglas
Your opinion on trading
1. In order to make money by trading, you need to know exactly how the market will behave in the future.

Agree Disagree

2. Sometimes I catch myself thinking that there must be some other way to break even.

Agree Disagree

3. The main purpose of market analysis for a trader is to make money.

Agree Disagree

4. Losses are inevitable part of trading.

Agree Disagree

5. Before making a trade, I always calculate the risk.

Agree Disagree

6. There is a price to pay to find out what the market is going to do next.

Agree Disagree

7. I will never open a deal if I am not sure of its successful outcome.

Agree Disagree

8. The more a trader learns about the market and about the peculiarities of its behavior, the easier it becomes to make transactions.

Agree Disagree

9. My trading system gives clear signals to enter and exit the market.

Agree Disagree

10. Even if there is a clear signal to reverse the position, it is difficult for me to exit the trade and enter a new trade.

Agree Disagree

11. Periods of stable success alternate with sharp drops in my trading account balance.

Agree Disagree

12. When I first started trading, my actions were completely unsystematic and chaotic - random successes alternated with serious failures.

Agree Disagree

13. Sometimes I find myself thinking that the market has something against me personally.

Agree Disagree

14. Despite my best efforts, I find it difficult to let go of negative experiences and heal emotional wounds.

Agree Disagree

15. I adhere to the principle of money management, according to which I always take profits as soon as the market allows it.

Agree Disagree

16. The trader's job is to identify the patterns (price patterns) of market behavior that provide an opportunity to make trades, and then determine the risk that will have to be taken in order to find out if they will work as well this time as they did. in past.

Agree Disagree

17. Sometimes I feel like a victim of the market.

Agree Disagree

18. When I trade, I try to focus on a single time frame of price charts.

Agree Disagree

19. Successful trading requires a flexible mindset that most people don't have.

Agree Disagree

20. Sometimes I feel good about the rhythm of the market flow, but I find it difficult to act in accordance with my feelings.

Agree Disagree

21. Many times it happened that I kept a profitable trade, and even when it became clear that the movement was ending, I could not take profits.

Agree Disagree

22. Regardless of the amount of profit on the transaction, the result rarely brings me satisfaction, and I do not leave the feeling that I could have earned more.

Agree Disagree

23. When making a deal, I am full of enthusiasm and I am overwhelmed with positive thoughts about future profits, whatever they may be.

Agree Disagree

24. The most important component of success in trading is the belief in one's own ability to work consistently.

Agree Disagree

25. If you had the opportunity to instantly master any trading skill, what would you choose?

26. I often spend sleepless restless nights thinking about the market.

Agree Disagree

27. Have you ever entered a market just because you were afraid of missing a move?

Agree Disagree

28. I like to feel the perfection of my trades, but this does not happen often. When I do well, I am so full of joy and enthusiasm that this positive completely covers subsequent failures.

Agree Disagree

29. Do you happen to plan trades that will never be executed and execute trades that you did not plan?

Not really

30. In a few sentences, express your thoughts on why, in your opinion, most traders cannot make money in the market or are unable to keep what they have earned.

_______________________________________________________________

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Save your answer sheet. When you finish the last chapter of the book (“Think Like a Trader”), try taking this survey again. I'm sure you'll be surprised how much your views have changed.

Chapter 1. The path to success: fundamental, technical or mental analysis
Initial stage: fundamental analysis
Does anyone else remember the time when fundamental analysis was considered the only true method of making trading decisions? When I started trading way back in 1978, technical analysis was the domain of a small group of traders who everyone considered to be at least eccentrics. Today, it is hard to believe that until relatively recently Wall Street, as well as most of the large funds and financial institutions, technical analysis was perceived as a fraud.

Now the situation has turned one hundred and eighty degrees. Almost all experienced traders, to one degree or another, use the methods of technical analysis when developing their trading strategies. With rare exceptions, a pure fundamental analyst is nowhere to be found anywhere in the scientific community. What led to such a radical change in the angle of view?

I guess no one will be surprised by the answer to this question. It is rather banal: money! Making trading decisions purely on the basis of the principles of fundamental analysis excludes the possibility of making money on the market.

Since perhaps not all of you are familiar with fundamental analysis, let me briefly describe its principles. Fundamental analysis seeks to take into account all variables that may affect the relative balance between supply and demand for a particular security, commodity product or financial instrument.

By using mathematical models to assess the significance of various factors (interest rates, balance sheets, weather conditions, and many others), the analyst gives a forecast of price changes at some point in the future.

The Achilles' heel of all these models is common: as a rule, they do not take into account other traders as variables. But it is the people, expressing their ideas and expectations about the future, that move the price, not the models! A logical and reasonable forecast given by the model based on all relevant variables may be useless if the traders who produce the majority of the trading volume of the market have no idea about it or refuse to believe in its validity.

In fact, many traders, especially those who work on the futures floors of exchanges, are able to give the price a serious acceleration in one direction or another, but they usually do not understand the fundamental factors that affect the supply and demand ratio. Moreover, their trading activity for the most part turns out to be a reaction to emotional factors that in no way correlate with fundamental characteristics. market. In other words, the market participants who set the price in motion do not always act rationally.

Ultimately, a fundamental analyst is quite capable of giving a correct forecast regarding the price level at one time or another in the future. However, in our time, high volatility in financial markets makes it extremely difficult, if not impossible, to act in accordance with the forecast.

Moving on to technical analysis
Technical analysis has existed for as long as organized markets in the form of exchange structures. But the trading community until the late 70s and early 80s refused to recognize the methods of technical analysis as an effective tool for making money. Let's see why most of the trading community, already established and formed, whose traditions were created by many generations of traders, decided to switch to the use of technical analysis methods.

Every day, week or month, a certain finite number of traders participate in trading around the world. Many of them perform similar actions over and over again in order to earn money. In other words, people develop behavioral patterns, and a group of people interacting with each other on an ongoing basis forms collective behavioral patterns. They are not only observable and measurable, but also have the property of repeating themselves with a frequency that indicates statistical reliability.

Technical analysis is a way of organizing collective behavior into identifiable patterns that clearly indicate the likelihood of a given scenario. Can сказать, что с помощью технического анализа мы получаем возможность проникнуть в сознание рынка и предвосхитить будущее движение цены на основании моделей, которые были сгенерированы рынком в некий момент in past.

To predict price movements, technical analysis turned out to be a much more suitable tool than a purely fundamental approach. It focuses the trader's attention on what is happening at a given moment in time and relates the present to past price action, rather than focusing on how the market should behave solely on the basis of logical and reasonable calculations determined by mathematical models. Fundamental analysis leads to what I call a reality gap between what should be and what is. The gap in reality makes almost impossible any kind of forecasting, except for long-term forecasting, which can be difficult to use even in cases where it turns out to be correct.

In contrast, technical analysis not only closes the reality gap, but also provides the trader with literally unlimited opportunities for generating profits by virtue of the fact that it allows you to find behavioral patterns in the market