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As traders and investors we need to learn from our mistakes. This is why failure is so important.
Most do not learn from their own mistakes repeating them many times over. Some do learn from their own mistakes but the really wise person learns from the mistakes of others and takes the footsteps to greatness short-cutting the learning process dramatically.
General George S Patten once said, “You do not measure a man by his success, the true measurement of a man’s character is how high he bounces after he falls down”.
Or this one from Thomas J Watson CEO of IBM from 1914 – 1956: “Would you like me to give you a formula for… success? It’s quite simple, really. Double your rate of failure. You’re thinking of failure as the enemy of success. But it isn’t at all… you can be discouraged by failure — or you can learn from it. So go ahead and make mistakes. Make all you can. Because, remember that’s where you’ll find success. On the far side.”
This short 1 min 18 sec video provides some examples of people that achieved great success after great failure.
In short, you don’t need to fear failure. You can redefine failure in a way that you look forward to embracing it when it comes along.
One can only honestly acknowledge a mistake if one has rules and processes against which to measure execution. If you have no rules to break then, by definition, you cannot make a mistake and rather an unsavoury outcome becomes the only definition of what a mistake is. The unsavoury outcome also becomes the fault of the market, or the particular environment in which you are executing.
Facing the truth is necessary to prevent making repeated mistakes, especially when trading. Truth is necessary at all levels of trading. It is just as important to the novice trader as it is to the seasoned professional. If you can truthfully ask yourself the tough questions, you are sure to find the answers. This requires honesty with one’s self.
There is a saying that goes “the truth shall set you free”. To learn from mistakes one needs a structure within which a mistake can be objectively defined and when a mistake is made to write it down. With respect to trading write the mistake down in a trading journal and then also commit to paper what can be done to ensure that the mistake is not repeated in the future. The process of committing to paper ensures that the trader has to come face to face with the plain truth and what they will do about it. If this is not done the trader’s current process will justify away the mistake as somebody/thing else’s fault. No further action is taken, the opportunity to learn from it is lost and hence the mistake is repeated in the future.
Please understand that it doesn’t take knowledge to do this on an ongoing basis. It takes desire, commitment and discipline. It takes courage to face up to yourself and take yourself on to rid yourself of bad dysfunctional habits and instil new good habits that are functional for the environment of trading the market.
Learning from mistakes is one of the reasons that trading with a mechanical system is key to learning how to trade successfully. A mechanical system doesn’t define a loss trade as a mistake. The trade is only a mistake if the rules were not followed. It redefines what is right and what is a mistake, with respect to trading. And trading is more about eliminating mistakes than it is about being right.
So embrace failure and learn from it.