For those of us on the North American continent this is the season of Thanksgiving and on this holiday I always recall the most extraordinary speech of gratitude I ever heard. It was my high school graduation and our science teacher gathered us in the school auditorium and instead of plying us with the usual platitudes about how “the future belonged to us” and how “this was the greatest generation, in the greatest country on earth, at greatest time ever …blah, blah, blah” simply said “appreciate failure, it’s the most powerful force in life”.
“Think about it for moment,” he said.” Success is nice. We enjoy it, we may even revel in it, but once we achieve it we pretty much forget all about it and move on. Failure however, we don’t forget so easily. Failure in fact is what drives all of us forward. Failure is why get up in the morning. Failure is why fight to live -- because if it wasn’t for failure -- why would be bother to do anything?”
Forty years after I first heard those words they are just as revolutionary today as they were when I was eighteen. In fact I think it’s safe to say that no advice was more responsible for my success that this simple speech that praised failure. It completely re-oriented my view of life because it made me realize that success was just the endpoint of endless steps of failure and if you really wanted to succeed you had to not only accept but embrace failure as the starting point of every activity in life.
In trading this can best be described by my methodology of what I call “Lose your way to Profit”. Whenever I design a new strategy no matter how smart, how well thought out, how well tested it is, I inevitably lose money when I first start trading it. Real markets are never like the ones on the chart and whatever insights you may have obtained from past price data, they will always have to be amended by the present day experience.
But unlike most retail traders who give up on their systems after 3 or 5 or 10 losses, I continue to trade, continue to tweak, continue to observe. Eventually after the fifth, the tenth or the twentieth stop out some small inkling of an idea appears. I adjust. I trade again and I do it over and over and over until the losses become less and less and eventually turn into teensy little profits and finally into steady gains.
This is how I did it with my VT system. This is how I am doing it now with my latest strategy -- Ping Pong and this is likely how I will trade for the rest of my life. In fact if I ever come up with a system that was highly profitable right out of the box, I would be highly suspicious of it and most likely it would go into a permanent tailspin sometime in the near future wiping out whatever gains it garnered.
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This is what many novice traders fail to understand. No system will ever work well out of the box. Success in trading strategies is always dependent on the combination of core ideas and market experience. That’s why we should never give up at the first sign of losses. As my high school teacher pointed out a long time ago , we should give thanks to failure -- it’s what drives us forward in both life and trading.