Tuesday, January 08, 2008

Some Personal Thoughts on Embracing Trading Mistakes

Whenever I go to a new city, I go through a process that I heartily enjoy. I study maps of the city and then take off to find things--without the maps. Of course, I end up getting lost, but that's how I figure out where things are. After a few trials and errors on major interstate highways, I get a sense for how the city is laid out and then I begin exploring neighborhoods. And getting lost. And figuring out how they're laid out.

I can't tell you how many iterations of getting lost and figuring things out I did before I learned my way around Chicago. But it worked. By making enough mistakes, I learned my way around.

Trading, for me, is very similar. I strongly believe that my greatest credential as a trading coach is not the fact that I've written books or blogs, and it's certainly not having three letters attached to my name. No, my greatest credential is that, whatever mistakes and bad practices traders come to me with, I've been there and done that. I doubt there's a mistake a trader can make that I haven't made myself. In spades.

Having traded since the late 1970s, I guess I'm sort of like the old guys at the AA meetings. There's nothing the young guys can bring in that I can't relate to. I've made all the mistakes, worked all the steps, myself. And I continue to do so. So it's difficult for people to bullshit me, and a bit easier for me to offer the tough love to those who bullshit themselves. I have an uber-Ph.D. in leaving money on the table, missing entries, mis-sizing trades, ignoring stops. You name it, I've done it.

I guess that's how I learn. It's how I figure out markets and cities. I look back and marvel at how many bad relationships I was in. That's how I found my way to a good marriage. One unfulfilling job after another? It's how I found my way to a good career. I make mistakes. I get lost. I try things and watch them blow up. I never quite get blown out--I protect my personal, emotional, and financial capital to that degree--but I keep doing things wrong until, somehow, I get them right.

It's not failure. It's learning.

I still make lots of trading mistakes. Last week, I had 3-4 points of profit on three separate trades and watched every one evaporate because I thought we could hit preset targets. That's what happens when you keep your eye on targets instead of markets.

So that kind of targeting didn't work; I'll have to adjust my exit strategy for those short-term trades. And I'll probably get lost again. Most likely by taking the three-point profit--on a 12-point move. Another mistake, another attempt. Until I get it right.

Embracing your mistakes is the greater part of resilience.


Resilience and the Courage of Your Convictions

Blueprint for an Uncompromised Life

Four Overlooked Qualities of Successful Traders