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Greatness follows Failure

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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.


  • Keith Hills says:

    Interesting. I must be, and am, learning a lot because I make lots of mistakes if I look at my closed trades list. Only a 28% success rate but showing a 3% margin. Imagine what the margin would be when I can make it 28% losses. May be I have not figured out which are the right stocks to pick when offered a smorgasbord. Just another challenge.
    I would be interested in knowing what is the average success rate for the average client, as a guide.

    • Gary Stone says:

      Response to Comment by Keith:

      A few responses to your comment. Firstly, a win rate needs to be put into context. A win rate for a long only system in a falling and / or sideways market will obvioulsy be lower than in a rising market so the win rate should be broken down a little further, possibly into market types. If the predominant market type in which a win rate has been achieved is down to sideways then expect a lower win rate and expect a higher win rate for a rising market.

      Secondly, this assumes that all trades have been executed exactly according to the rules of the edge. Big assumption but very important. The difference between what would have been achieved with flawless execution of the edge’s rules and actual achievment will determine the trading error rate. This has to be minimised and eventually eradicated and hence is what must be determined in the journal that is referred to above. The trader has control over her trading error rate but has no control over the market type, only how he / she reacts to it.

      Thirdly, while %, by definition, indicates “out of 100”, this is not the way that active investors with an edge should necessarily measure how well they have executed. Most trend following systems will have a win rate below 50% over a large sample. 100% winning trades is unattainable over a large sample of trades. So in this context, achieving ‘100%’ would be achieving what the edge achieves.

      E.g., if the win rate for an edge is 45% over a large sample of trades then achieving 45% would be matching the edge. This could be viewed as achieving ‘100%’ for a test. The other 55% of loss trades are a natural part of trading with this specific edge and should hence be factored into the traders expectations. Therefore these loss trades are NOT failing. This is an example of how successful traders redefine their environment.

      Lastly, measurement of how well one executes is totally different to portfolio performance. Successful traders focus on how well they execute their processes and meassure this through journaling and diarising. The better the execution of their processes the better their portfolio performance will be.


  • David Hilton says:

    “The truth shall set you free” is a statement uttered by one, Jesus, as recorded in John’s Gospel chapter 8. In context, Jesus is saying, “If you continue in my word, you are truly my disciples, and you will know the truth, and the truth will set you free.”

    While maybe this saying might have wide application in many contexts, I don’t think Jesus particularly had stock-market investors in mind at the time !!

  • Ralph says:

    Great explanation Gary

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