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.


RELEVANT POSTS:

Resilience and the Courage of Your Convictions

Blueprint for an Uncompromised Life

Four Overlooked Qualities of Successful Traders

13 comments:

Michelle B said...

Great post, one of your best.

Izzy said...

So true, thanks for the reminder. yea, we all make mistakes. Mistakes are progress especially when I make those same type of trading mistakes too.

bryan said...

Lovely post. Thank you.

Adam said...

Brett ~

One of the most credible trading bloggers recounts a story:

He goes to the Chicago offices of a trading firm, where he’s going to sit in with successful traders.

One man enters a trade on buy signal likely to take out a near-term high. The buying peters out and he exits the trade with a tick loss. Turning to the observer he says, “I just paid for information.”

Some minutes later, the buy signal repeats. The trader sells heavily and exits this second trade a few ticks to the good.

One moral of this tale is that the trader didn’t mistake the map for the landscape, which is exactly what you’re describing when telling us how you explore new cities.

Great post.

Adam.

Lavonne said...

Just what I needed today! I transitioned into full time trading in December, after trading part time for two years.

The learning curve has been rather steep (especially around profit targets), and your post provided thoughtful comfort.

Thanks once again for keeping this great blog - I check it out everyday.

J said...

Brett - a great approach, and a great post. Thanks.

procol said...

I don't pretend to offer advice , but this 'device' might be useful.

Any position must be evaluated as if it was entered NOW. If you would not enter it NOW , at this price, why are you holding it?

Playing with their money is not an answer. It's your money.

Now, you can easily misuse this approach and get shaken at every possible opportunity. If you can overcome that, and faithfully reevaluate the value of a position NOW, and not vs your entry, or some imagined target, you may have something.

Brandon Wilhite said...

Thank you for sharing...you are a respected member of the trading community and something of a role-model/mentor in many ways...so it's really good for you to share these kinds of things. Of course, I'm sure you knew that ;)

BW


Unrelated--I've started reading "Evidence-Based Technical Analysis." I know I've expressed my reservations about his type of epistemology before, but it's very good anyway. Out of the two books I've bought on your recommendation both have been well worth the money. Thanks.

ainkurn said...

this is one of your best articles yet. I love it when you compare the trading world to things that we can all relate to. i've been lost many times in the trading world, and have always eventually found my way, I hope this trend continues.

Ryan said...

Brett,

You hit the name right on the head. The wrong action beats inaction anyday. Even if your making mistakes, you can always adjust the course along the way. If your not taking action on trades your not going anywhere.

I think may traders do not have the correct belief system to trade. If you know your going to succeed as a trader you wouldnt mind failing along the way. It all starts with your subconscious programing and how you frame the game of trading.

Great article Brett,
Ryan

spahiu said...

one must learn from their and other mistakes.. harder than we'd expect tho'

Brett Steenbarger, Ph.D. said...

Thanks for the many supportive comments on this post. I've benefited quite a bit by taking the approach, "My setback is here for a reason. What am I supposed to learn from it?"

Brett

MACDOW said...

What a great post.
Thanks again for your wisdom. You said "Embracing your mistakes is the greater part of resilience".
Well guess what. I have printed it out in bold and stuck it on my desk, so I keep reminding myself of my other favourite saying.
Resiliant traders keep trading. Obviously with a few more things considered. I am not saying we simply trade like machine guns. Just saying that after a mistake or three we need to pick up the pieces and keep trading.