Trading/Investing/Life Essential Requirement: The Ability to “Systematically” Learn from Errors

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The percentage of successful traders is quite low compared to the amount of people who attempt it. The odds for success are higher for those who properly train and prepare  to trade professionally as opposed to using the market as a gambling casino outlet.

Even among those who take trading seriously, being consistently profitable is a goal that eludes many. The biggest hurdle is being able to develop a system that takes into account the market activity of all its participants so that one can forecast price movement going forward.

This is the area that trips people up the most – trying to find an effective way to trade the market. There are books written that list many diverse trading strategies aimed at trading successfully. Of course, any system used is only as good as the person using it. From my experience there are no “book written” systems that guarantee satisfactory results because it depends on how well the trader can master that system. Similar to books on how to excel in certain sports or careers- the information has to be combined with proper action and preparation.

One key item in successful trading, and really life in general is the ability to be good at systematic problem solving.

A successful trade really teaches one nothing except that what was tried worked. The true learning opportunity stems from carefully analyzing trading errors made. When an error is made the following questions arise:

 

1) What was the error?

2) What was the correct solution?

3) Why was the correct solution missed?

4) What changes need to be made so the error is not repeated?

 

Of course these questions are based on the premise that one is trading systematically – by a set of rules they have developed over time that allows them to trade consistently based on those rules. If one is trading by “instinct” with no rules, then it becomes a very difficult task to make systematic corrections as there is no system in place.

Having a system in place allows you to make improvements based on the answers to those questions. Not that solutions come easily, but it sets up the groundwork to move forward over time.

Each question if properly researched can be very enlightening. Take question #1 – an error doesn’t have to result in monetary losses, although that is usually the case. If the system wasn’t followed correctly, that would be an error- even if the trade turned out to make money.

Question #2 can be difficult to answer as sometimes one has to figure out why prices moved to a certain area using their system methods. Question #3 puts the burden on you to examine your system to see if you missed the signal, or if the signal can’t be determined from the system.

Answering question #4 helps improve your system going forward. If you’ve done your homework right, you are now guarded from making the same or similar mistakes. That’s the good news. The not so good news is the market has a lot of different ways it can try to trip you up, so “debugging” your system can be a long arduous task.  This is the area that holds back the bulk of seasoned traders. You have to be organized, meticulous and enjoy problem solving.

The good thing is as your system evolves over time with persistence and dedication, you can reach a “critical mass” of system development where your system is starting to produce enough reliable signals where the iteration of answering those 4 questions become easier and easier. At this point, you aren’t really building as system as you are smoothing it out with minor rather than major adjustments to improve accuracy.

This process can be applied to most areas of life in general to get the results we desire over time.

 

 

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