“You don’t need to know what’s going to happen next to make money. Anything can happen. Every moment is unique, meaning every edge and outcome is truly a unique experience. The trade either works or it doesn’t.” — Mark Douglas

This week I was saddened to hear the news that Mark Douglas had passed away. Douglas was well known in the trading community for his work in psychology in the market. A pioneer in his area of expertise, he wrote classic works such as “The Disciplined Trader” and “Trading in the Zone.” One of the things that made Douglas so special was his ability to communicate and simplify terms such as profit gap, edge, and outcome.

Profit gap is simply the difference between actual results versus what a trader could have made had they followed their process. One way he described it was to picture a high school basketball player who is practicing free throws. It would not be uncommon to hit forty or fifty free throws in a row. That same basketball player shooting free throws in a NCAA finals game down two with the game on the line would probably have different results. The lesson of this story is that the trader must stay positively focused on the process of trading, forgetting about consequences and taking each trade without hesitation, reservation, or fear. Your method can only take you so far. For example, your method may tell you to buy a stock once it crosses into the pivot zone. While your method may tell you that, it cannot stop you from jumping the gun in the trade and buying before the pivot point.

Another nugget of wisdom Douglas gave us was that by accepting randomness, one can produce consistent results. While this may seem like an enigma, it is not. A market participant must learn to think in probabilities. It is impossible to know the outcome of one particular trade; however someone with an edge (higher probability of one thing happening over another)  can have a successful outcome over a series of trades. This is why it is critical to predetermine risk so that each trade will just be one trade in a long series of trades.

As MarketSmiths, we have the tools that give us an edge in the market. We must use our edge, rules, and process in order to have success in the market. Once you can change your perspective, everything changes—allowing us to become the most successful investors possible.


Best Returns,


Andrew Rocco
The MarketSmith Team