The Thing About Being Wrong.

And How It Can Make You A Better Trader.

From the very beginning, I determined that to be a good trader I would have to implement a disciplined and consistent strategy. Doing so would help eliminate those emotional tendencies that, at times, like to take over. Trading strategies can also be quite boring.

I think all of us have a bit of a gambling bone in our bodies. In fact, I know all of us like to gamble because that is exactly what life is. It’s a gamble. Think about it. From the moment you wake up until the moment you lay your head on the pillow at night to go to sleep, you have been gambling. Each decision throughout the day represents a type of gamble. Now, you may not have been looking at it this way, but it’s true. You trust the vehicle you get into to drive to work. A gamble. You trust each driver headed in the opposite direction is not going to swerve over and hit you head-on. A bigger gamble. When you stop for food or coffee, you trust that the food and/or drinks will not make you sick, give you food poisoning, or worse. A gamble. You have placed your trust in the supply chain that brings you your food every single day, from farm and farmer, to the trucks, to the factory that processes it, to the grocery store that sells it, to the cooks that might prepare the food for you , to the waiter or waitress who serves it. That’s a lot of trust! And, a pretty big gamble that we make daily. In fact, these are all pretty big gambles that most of us make on a daily basis. We are all put in situations that force us to make risky choices daily. There really is no way to live without risks. The trick is to make decisions that helps us to reduce these risks. And that’s where implementing a strategy comes in handy.

But what does this have to do with admitting we are wrong? Well, I’ll get to that in just a moment, but first, a little context regarding my own personal experiences with trading.

I was always hesitant about going public with my trading. As I think about why this might have been, the thought that immediately answers this question in my mind is because I knew it would make me trade differently. But why would it make me trade differently? Well, it’s easy to swing for the fences when no one is watching. We can also hit a lot of home runs this way. But for some reason, we really don’t like to pay attention to how many times we’ve swung and missed or even struck out. Striking out in practice when no one is around and watching is one thing, but in a packed stadium with a full crowd, it becomes quite another. People are paying attention. They want to see how good you really are. They will keep track of every little stat to help them figure this out.

Herein lies the reason that most traders who claim to be great, don’t often tell you the full story. They will bring up all of their wins with every chance they have. They will repeat their most profitable trades ad nauseum. They will go on and on about how they were right and they told you this would occur and how you should have listened to them and nobody else, but when it comes to any of their losses or how they were wrong? …Crickets.

Does this tell us everything we need to know about that trader or how we could make adjustments and become better at trading ourselves? Of course not. To become the best trader we can be, we have to look at both the good and the bad, the pretty and the ugly, the times we were right and also, the times we were horribly wrong.

You’ll notice, if you’ve been following me for any length of time, that I have recognized the importance of acknowledging my mistakes and have attempted to review these mistakes quite often since. Think about the time when I went against that huge Head and Shoulders pattern on Bitcoin a few years back and stayed long in my positions, stating that I did not think it would play out. Then that neckline broke and it was red candles all the way down. I was wrong to go against a pattern with an 85%+ probability of playing out. I was wrong to trade into LUNA heavy before it went to ZERO and did not have any stops. I learned from these big mistakes. I now, do not bet against big patterns and I have implemented a stop-limit strategy. Though, sometimes I gripe about stop limits, the extra effort they take to manage and how they can stop us out before big moves upward, stops have often saved me from big losses. It is a safety strategy that we can utilize to help us avoid ever striking out.

These are just a couple of examples in which I have had to learn lessons the hard way. These painful experiences in which I was wrong helped me to form a better trading strategy, one that is far less risky but also, one that works. In my current spreadsheet, we have approximately 3 wins for every 1 loss. This may not be the best record that a trader could have but it is a winning record and that is all that is needed to become successful. And, by the way, we are all only improving with time like fine wine.

A winning strategy simply cannot be developed if we don’t learn from our mistakes. We must acknowledge our failures and the times we were wrong. We must be humble about doing so, not defending, ignoring, or excusing our loss in any way. We must take notes on our failures. And then, at some point, we must implement a strategy that helps to mitigate those risks associated with the gamble. This is exactly what we do in our everyday life. How much more important is it for us to do this with the money that helps us to live our everyday life?

Just some thoughts for the day. Let me know in the comments, do you agree, disagree, or have anything to add.