Sunday, January 28, 2007

The One Thing That Transforms Stress Into Well-Being

Cognitive psychology teaches us that it's not events in themselves, but how we process those events, that determines our emotional reactions. The most powerful tool for transforming stress into well-being is the ability to embrace failure. The stressed individual equates failing with being a failure, as something to be avoided at all costs. The individual with well-being may well fail just as often--indeed, Dean Keith Simonton's research suggests that greatness is accompanied by a high failure rate, but an even higher rate of productivity--but views those failures as learning opportunities and worthy challenges.

I can't tell you how often this has occurred in my experience with traders: Trader A loses money on his or her first two trades, loses confidence, and stops trading, only to miss out on subsequent opportunity. Trader B loses money on his or her first two trades, becomes angry and frustrated, and leaps into a third--and even more disastrous trade. Trader C figures out what the two losing trades are revealing about the market and uses the information to profit from that third trade. The difference is not in trading methods or P/L after the initial two trades. The difference is that Traders A and B are threatened by failure, and Trader C embraces it. Failure is an opportunity to learn. Failure is there to teach us. Failure pushes us to become more than we are at present.

I found a website with a few fine quotations that make the point more eloquently than I ever could:

Experience is the hardest kind of teacher. It gives you the test first, and the lesson afterward - Anonymous

I haven't failed; I've found 10,000 ways that don't work - Ben Franklin

If you want to increase your success rate, double your failure rate - Thomas Watson, Sr.

The only difference between a diamond and a lump of coal is that the diamond had a little more pressure put on it - Anonymous

Life is not a matter of having good cards, but of playing a poor hand well - Robert Louis Stevenson.

Finally, a personal story. When I wrote my first article for an academic journal, the editor returned the manuscript full of red and blue pencil marks. Just about every sentence was torn apart. The editor explained that they could not commit to printing my article, but would look at a revised version based on the comments on the manuscript. I was crushed. I called the editor and asked why he didn't like my article. He was stunned. He said, "I loved your article. Do you think I'd take the time of suggesting so many revisions if I didn't like it? If we don't like an article, we don't waste our time on it. We send it back with a few comments and a thank you." Heartened, I made the changes, learned a ton about what editors look for, and got the article printed. That led to several more articles for the same journal, which led to articles for other journals, which led to the first of my four book contracts.

Had I taken the initial feedback as failure, I would be unpublished to this day. By embracing my "failure", I learned, and I succeeded.

Now go forth and identify your greatest failure of the past week and figure out what you'll learn from it that will help this week's trading. For you, as for me, failure may just end up becoming your greatest teacher.