BarroMetrics Views: Trading and Making Mistakes
“…many of his (Einstein) of groundbreaking discoveries were blighted by mistakes……His extraordinary intuition about physics nonetheless permitted him to discover profound truths despite - and sometimes because of - the mistakes…..the defining hallmark of Einstein’s genius was……an uncanny talent of using his mistakes as stepping stones….”
(Einstein’s Mistakes by Hans C Ohanian)
In completing the book, I couldn’t help but reflect how appropriate that statement is to trading success and to learning in general.
When I learnt to trade, I was ‘brought up’ on stories of 90% success rates and 1000% increases of the capital base in a short time. The lessons fitted in with the way I was taught to succeed in other areas: to be a success, one did not make mistakes.
But trading has taught me otherwise. It has taught me that:
- Losses (mistakes) are part of success.
- Changing one’s mind is not only permissible but advantageous e.g. exiting a trade before a stop is elected; stopping and reversing. (See this week’s video)
Neurological research has finally caught up with my experience. Daniel Coyle in The Talent Code utilizes the most recent studies to advocate a learning model based on the model geniuses use. One of the elements of that model is ‘gap learning’:
- Identify the outcome you want
- Identify the component parts
- Learn each part by taking action, noting the difference between the outcome and the result of the action; repeat the process.
- Journaling is a key tool in this process.
Step (3) can be called ‘learning from our mistakes’. Coyle and David Rock suggest that learning by making mistakes is the fastest way to mastery.
Compare this to the way most newbies look to learn to trade.
- Few start to keep journals; fewer still maintain the practise;
- Few use simulated trading to fathom out whether they understand the system they are implementing and its nuances.
- Few take the time with micro accounts to see if they can make money using a specific approach.
Instead they fall prey to the ‘pie-in-the-sky’ promises of instant wealth through little effort. Science now shows us that mastery (from which wealth from trading comes) requires effort of learning. The fact is success comes at a price. We just have to be willing to pay it.
Refer this blog post to a friend or colleague…
