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How to Trade in The Zone (Without Fear)

Imagine you are asked to give a presentation on the topic of your choice to an audience in an auditorium.

And you have only one day to prepare for the presentation, and no excuses are accepted from your end. So you’ve got to deliver the presentation no matter what.

How would you feel as you prepare for the presentation?

Yes, you would be feeling uncomfortable in your body.

And your mind thinks about “how to present on this topic?”

“This is unfair. I don’t have enough time.”

“I don’t know what to speak about.”

“I might fail, and people will laugh at me.”

All these plenties of thoughts that happen inside your head trigger many uneasy emotions in your body.

So how do you deal with this situation? Would you escape, or you embrace the situation and deliver the presentation?

Now, let’s flip the question.

Imagine you’re invited to give a presentation on a topic with which you are so familiar. You’ve already given this presentation quite many times before in your life so far.

The content of the presentation is so fixed in your brain that you can deliver this presentation even at 3 am in front of a large group.

Now how would you feel?

You will feel confident, and you’ll happily ask the organizers when to deliver the presentation. And when the time arrives, you go ahead and deliver without feeling any fear in your body.

What’s the change from the first scenario to the second one?

In the first scenario, you’re not confident.

In the second scenario, you’re confident.

Likewise, when you’re trading a method that you don’t know in and out, you trade with fear and lack confidence.

But when you’re trading a method that you know in and out, you’re trading in the zone with confidence.

In this article, let’s explore how to create a level of confidence inside our heads so we can trade in the zone, feeling no fear. But before that, first, we need to understand what this term is called “Trading in the Zone.”

What is meant by Trading In The Zone?

Trading in the zone is a concept I first encountered in the book “Trading in the Zone” written by Mark Douglas.

The author suggests that if one wants to become a profitable trader, one should know how to position himself in the zone. And take the trades based on a profitable trading method without worrying about the outcome of those trades.

The essence of trading in the zone lies in understanding the following statement.

“A profitable trader who trades in the zone is not worried about the trade outcome. It could either be a winning trade or a losing trade. The result of a trade does not affect him emotionally. If a trade ends up in a loss, he looks forward to taking the next trade. If a trade ends up in profit, he looks forward to taking the next trade.”

He repeats this process of taking the trades repeatedly without feeling the emotion of happiness or sadness in his body. Even if he feels the emotion, he ignores them and goes ahead to execute his trades. He knows that if he has a profitable method, then as long as he keeps taking the trades, he will end up earning money.”

All he is doing is just playing the game of executing his trading rules.

So, how do you trade like this when you have 3-4 consecutive losses, and you feel like you’re losing money?

How to overcome revenge trading, not pulling the trigger, booking profits soon, and all other trading mistakes?

The answer lies in understanding the two core principles of successful trading, which gives us a ticket to trading without fear. So let’s find out how.

trading in the zone

How to trade without fear?

The only way to overcome fear and trade in the zone is to follow these two principles.

  1. Know your trading method thoroughly
  2. Backtest your trading method to ensure it’s a profitable method

Let’s understand each of them in detail with an example.

Know your trading method thoroughly

There’s a reason why successful people become successful in the first place.

It’s not about the talent, skill, or the planets aligning in their favor.

It’s simply a result of taking time, investing time to understand their field, and then taking action consistently.

Let’s say you want to become a world champion in chess.

What’ll you do?

Won’t you take the time to understand all possible nuances of the game of chess?

Yes, some days, you’ll be feeling good as you go through the craft of acquiring the skill. And yes, some days, you won’t be feeling good, but despite this, you’ll practice the game because you’re committed to taking the game seriously.

It becomes like “Nothing in this world” can stop you from reaching your goal.

The same mindset you’ve to bring to your trading if you want to become a profitable trader earning a decent amount of money from this great business.

To become a profitable trader, first and foremost, you need to understand the methods by which you will trade perfectly. If you’re having a lot of doubts during market hours in executing your trades as per your methods, you’ll take the wrong trades because you’re not clear within.

First, commit yourself to understanding and knowing your trading method in and out. When you’re committed, you won’t be taking setbacks seriously. Instead, you’ll move forward despite the setbacks.

Because now you know where you’re going, and it’s normal to encounter setbacks on the path when moving towards a destination.

So, what are the questions that a trading method should answer?

A trading method should answer these questions with clarity.

For long trades

  • When you buy, and where will be your initial stop loss?
  • How many points/rupees will you be risking per trade that you’re comfortable with?
  • Once you’ve bought and the price moves in your favor, how you’ll trail your stop loss?
  • When you’ll look to exit/book profit?

For short trades

  • When you sell, and where will be your initial stop loss?
  • How many points/rupees will you be risking per trade that you’re comfortable with?
  • Once you’ve sold and the price moves in your favor, how you’ll trail your stop loss?
  • When you’ll look to exit/book profit?

That’s it. Your entry rules and exit rules for both long and short trades should be crystal clear to you.

No gut feel.
No guesses.
No doubtfulness.

When you see a chart, be able to think like this.

“Yes, the market has given a long signal now based on my method.

I’ll be placing a long order at this price for this much quantity. And I’ll be putting my stop loss here.

Once the order is triggered, I’ll place my stop loss. If the market hits my stop loss, then I’ll be waiting for the next trade. If the market moves in my favor, then I’ll be looking to book profit here.”

Your entire action steps should be clear in your mind first before you execute the trade. So you’re well prepared in advance. And you’ve to repeat this process, again and again.

The only problem now is, “How can you repeat the process again and again, in the event of consecutive losses like let’s say when you have 3 or 4 losses in a row?”

That’s where backtesting comes into play, and it gives us absolute confidence in trading in real-time like a professional.

Backtesting your trading method to ensure it’s a profitable method

Backtesting means you’re taking your trading rules and executing them on a historical chart without risking your money. Most of the software today comes with an in-built bar-by-bar tool – where you can go through the chart on a bar-by-bar basis.

Take, for instance. You come up with a day trading method. And you want to trade Bank Nifty with this method.

You open your trading software, put up the Bank Nifty chart, and go through it bar by bar.

If you’re trading 5 min charts, then go through bar by bar in 5 min charts. If you’re trading 60 min charts, then go through bar by bar in 60 min charts.

Simultaneously open up an excel sheet. Here you will note your trade entry and exits.

You need to have 5 columns in excel.

Date, Entry price, Initial Stop Loss, Exit Price, Net gain/loss, Every day, go through the chart and apply your trading rules.

If it signals long trade, you mark the entry price and the stop loss.

After the trade entry, if it hits the initial stop loss, then mark it in an excel sheet.

If it signals long trade, you mark the entry price and the stop loss.

After the trade entry, if it moves in your favor, and you exit the trade at a profit, then mark it in an excel sheet.

You got the point. Isn’t it?

All we’re doing is for every trade. Based on the trading rule we’ve come up with, we are marking the entry/exit along with the profit/loss it gave.

Now do this backtesting minimum for 1 year to get an understanding and profitability of this method. After that, you can try doing the same for another year if it gives profit after one year of backtesting.

If it does not profit after 1 year of backtesting, consider tweaking or changing your trading rules. Do this till you end up with a profit after backtesting 1-year data. Or look for other trading methods which match your backtesting criteria. 

Do this for a 3-4 year period, and if you end up in profit, then there is a high probability that your method might give you good profit.

Now with this backtested data, you approach the market with a little money initially. To streamline the process of monitoring the chart, noticing your trade signal, placing the orders, and so on. To eliminate inefficiencies in your workflow and to become much more efficient.

After 1-2 months, if you’ve got efficient in executing the trades, then deploy your entire trading capital.

With this much preparation going into the scene, do you think you’ll be fearing the market when it gives 2-3 consecutive losing trades?

NO WAY 

Because now you “really know within you,” these losing trades are part of the method you’re trading. Your backtested results will give you the confidence you need. You’ll become entirely focused on the process of trading, than worrying about the outcome.

That is “Trading in the Zone” without any fear.

But you arrive at this place through backtesting your trading method for several years.

But what if you don’t have time to backtest?

Yes, nobody has the time nowadays. And we’ll never get enough time so we can work on our goals. So the best strategy is to allocate a certain amount of time, even if it is only 30 minutes per day, to practice backtesting your trading plan.

This is the attitude of all successful people. They never complain about not having time. But, they find time despite their busy schedule in their day-to-day routine and use this time wisely to achieve their goals.

What’s the one thing you can do today?

Write down your trading rules. And backtest it for 3-4 years.

Yes, backtesting doesn’t give money, and it might look like a sheer waste of time. But ignore this line of thinking and backtest anyway.

You’ll get confident about your trading method. This confidence gives you the ability to execute your trading rules flawlessly during live market hours.

Just like how you’re confidently able to deliver the presentation on a topic you’re so familiar with, you’ll begin to trade in the zone (without any fear) confidently.