This Is The Truth About Failure, And Knowing It Will Make You A Better Trader
February 12, 2018

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This Is The Truth About Failure, And Knowing It Will Make You A Better Trader

In today’s post, I want to share a passage from my book, The Essence Of Trading Psychology In One Skill

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To succeed, you first have to be willing to experience failure.

The highlight of what we do as traders revolve around courting uncertainty – it spins and turns, and we merely need to hold its hands and dance with it. But the traders who don’t know the dance or those who are instead leading a fight, are the ones who typically go home alone (and broke). That is precisely where I was a couple of years ago.

I started trading in 2007, but because of my inflexibility, five years into the endeavor and I still couldn’t engineer consistent results. At one point, my financial situation became so dire that I had to make this work.

Unfortunately, things didn’t conform to my hoping, wishing, or praying. Reality didn’t fit the box-shaped vision I had for it.  The pressure to perform, coupled with my fears of failure – which were instilled in me from an early age and strengthened through my painful life experiences in and out of the markets – made making money an impossible feat to achieve.

Later in 2011, I blew up and my whole world, which was already hanging on a thin string, came crashing down. I had failed to make it as a trader, and in my obsessive quest for financial freedom, I had alienated family and friends. I became more and more closed off, and I was in poor physical and mental health.

I had failed my life (so I thought).

Today, as I let those painful memories capture my experience of the present moment – while enjoying a nice cup of Yerba Mate in a beautiful cottage overlooking the gorgeous white mountains of British Columbia – I can only smile. Of course, nothing “bad” happened to me. Sure, I felt pain, but my life didn’t end. I didn’t lose my sanity, and I surely didn’t give up on my dreams.

In fact, life is pretty good at the moment… I now make decent money in trading, and my books and occasional speaking gigs complement that income. But above all, I am healthier and happier than ever.

So what happened?

A lot of things! To understand everything I went through, I’ll let you read Zero to Hero. But in short, I changed my perspective on a lot of things, and this started with a simple shift in how I viewed my failures.

Fall seven times, stand up eight.

In dealing with some ingrained patterns of detrimental behavior – understanding their cause to better transcend them – we have to take an objective assessment of reality. And the reality of our negative perception (of failure) can be somewhat insidious as it finds its roots in the core of our society.

A lot of things are passed on to us through our genes, but the only fear that we acquire this way is that of falling. This is observable in young babies – they can’t determine what is outside the norm and could be a cause for alarm but for the feeling that they are falling. So, many of the fears that we possess and express in the world, are passed on to us via our parents, culture, etc.. In other words, fear is learned, and this is especially glaring with our aversion to failure!

In the west, the classical way this fear is taught to us (and reinforced) is through our educational process, which came about not to really educate children but to develop good employees. The sole purpose was – and still is – to “create” highly skilled workers who are able to think and come up with new ideas, but they also have to do what they are told. This is achieved through the educational process where we are taught never to question the teacher, and to learn everything we are taught in a somewhat systematic manner.

We are fed with facts, tested on those facts, and those of us who make the least amount of mistakes are considered to be the smartest ones. The ones with the lowest scores are shamed and disparaged.

Hence, the educational system spends no time teaching us that failure is, actually, an essential part of the process of success. We aren’t taught how to learn from our mistakes and how to rebound from failure – yet this is critical to real learning.

Unless you had exceptional teachers who were willing to break out of the mold, chances are that you weren’t learning those crucial life lessons needed to navigate real life – let alone the markets.

Learning those lessons is part of life one might argue, and I agree with this proposition. But how can we learn if:

  • Everyone around us is doing the same thing – trying to avoid painful experiences that come as a result of being wrong and failing?
  • Everyone around us is striving for perfection, even when no such thing exists?
  • Our parents couldn’t even teach those lessons to us, because they, themselves, didn’t learn them?

You see, it’s a cause-and-effect relationship, and society as a whole marginalizes us if we don’t live up to these same dysfunctional standards.

Failure is only an opportunity to begin again – this time more intelligently.

This is less of a problem for the majority of the population who are fine working for someone else. But, for those of us who embark on a journey to becoming self-sufficient and self-directed traders, entrepreneurs, and innovators, we start our journey ill-prepared for the harsh reality that awaits us.

Instead of flowing with, and adapting to, uncertainty, we desperately try to create it even where it doesn’t – and cannot – exist.

For us traders, we unknowingly crave the sense of certainty that analyzes and the numerous indicators on our charts appear to give us, and our egos hang onto every trade we place.

Up and down moves in the markets make our mood swing like a pendulum. And when we are proven wrong, lose, or miss, we freak out because according to what we have all learned to believe, failing means there is something wrong with us. Failure also means the end.

So, naturally, we insist and try harder to be right; to “succeed without failing”to feel whole, smart, responsible, virtuous, and safe… but it’s a never-ending cycle and a recipe for misery unless we learn to break out of it.

Before the truth can set you free, you need to recognize which false belief is holding you hostage.

Our fear of failure comes from unconscious standards that we hold in our mind based on past painful memories.

We must have experienced shame, belittlement, humiliation, mockeries – often repeatedly – to have developed an aversion to it. And the mind, in a clumsy attempt to protect us, builds these rigid walls of expectations and standards. It automatically thinks that if it tries harder to be right, then it will spare us pain.

Again, as we see, it’s a typical example of the fight or flight response in action. This response isn’t only triggered when faced with the possibility of physical threat. It can be triggered when we are confronted with information that is contrary to our worldview or paradigm.

This “cognitive dissonance” arises as an extremely uncomfortable feeling at a discrepancy between what we already know or believe, and new information or interpretation. And the natural reaction is to protect what we already know to be true. Example: I am right in my assessment of market direction, therefore I will keep my trade on, even though the market has proven me otherwise. Even though the market is trending, I will exit my trade here for minimal profits because last time I lost money when I kept it on.

What is problematic are those high standards or ideals that we hold for ourselves, and others, that we grew to believe and act upon.

We only see what we are prepared to see.

Inflexibility breeds mediocrity in trading, relationships,  and anywhere else, but acknowledging this fact allows us to play the game differently. We have to learn to let go of our need to be right in order to escape failure, and instead, embrace uncertainty and real growth. This is the only way to change our experiences, in and out of the markets, to something that is truly fulfilling as a matter of subjective experience. A mind open like the sky allows us to see that:

1. The control we think we have…. it’s an illusion!

We live in a world of cause-and-effect and the reality of our lives is a direct result of causes (actual and prior) that we don’t have any control over. It is determined by different factors, many of which are impossible to investigate. Do we have control over all the people, close and far; known and unknown, who affect our lives so intimately? Do we control the overwhelming power of nature? Do we have control over what markets do? This control we think we have on things is an illusion! And if it is so, then failures are bound to happen. But we can minimize their number of occurrences by keeping a growth mindset at all times and by staying open to the lessons they teach us.

2. Our cherished beliefs, opinions, values, and decisions are biased, however much we resist to defend them.

We tend to think that they are forged by careful, rational, and objective consideration of ideas, facts, and parameters. We like to think they have the ring of intelligence and soundness to them. Of course, the reality is otherwise. Beliefs, opinions, values, and decisions are all based on our feelings and many cognitive biases which can have an uneasy relationship with facts. This is something to keep in mind whenever you feel like arguing with the markets. When all is said and done, price doesn’t lie.

3. Interpretation happens within us.

The environment that surrounds us (markets included) doesn’t interpret the information it has to offer. Good, bad, right, wrong are subjective ideas and occur strictly in our minds. So, we are the ones putting context behind our experiences with our own sets of beliefs and values. But, it is possible to change how we live every experience. We just have to shift our perspective on what wrong really means for us. Does it mean guilt, shame, frustration, anger, despair, confusion, or intrigue, impartiality, incentive, opportunity to learn, inspiration, creativity? In any case, we create our own reality. If I could go back 10 years, just when I started trading, that is what I would tell to my younger self.

4. Success and failure are intertwined.

Success is not an event, it is a process composed of valleys – failures, mistakes, losses. Take, for instance, the process of scientific investigation which human advancement rests upon. When a science experiment is conducted, many results will show up – positive and negative ones – all of which are data points. That is how scientists view failures – as just data points. When we adopt a similar approach, every winning or losing trades become data points. By this process of careful experimentation, as we keep trading, we discover more data about what works and what doesn’t. That is the epitome of a scientific approach, which is conducive to better and stronger results in the long run.

5. We need “failure.”

The situations and experiences we like to resist with all our might are precisely the ones who should be embraced because everything that dismantles our limiting mental construct is beneficial. Failure is just an experience. We are here on earth to have experiences, aren’t we? Our fears may come true, but even with a bad outcome, there may be good if we have the awareness to see it. Nothing is ever “wrong,” therefore, we are safe at all times.

Focus on what you can control, instead of what you can’t.

When we cultivate a sense of stillness and ease in the midst of uncertainty, we allow things to happen the way they want to. And this letting go of trying, wishing, wanting, has the potential to engineer for us not only consistent trading results but also emotional well-being.

It shifts our perspective from one that is solely focused on not failing, and control, to one that is focused on learning, but above all enjoying ourselves in whatever we do and whatever happens. Most things aren’t as serious as we make them anyway.

How does this work in trading?

Let’s say you have a trade on. You might desire a particular outcome for that trade. That is what you want. But what if you let go of this desire? What if you say, “I don’t know what will happen.” (By the way, you really don’t). What if you say, “Let’s see what happens.” You place your trade; you put your contingent orders, and you let it work to fruition. Win or loss, it is what it is, but you fully trust your methodology – which structures your approach to the markets.

Now, this particular trade might turn out to be a loss but as you step back and allow things to happen, over time your results will take care of themselves, and your needs will also be met – minus the anxiety, frustration, and other limiting states of the mind.

As soon as your mind tells you that something always happens and that it is 100% right on the assessment of a particular situation, that means that you are in the grid of a false belief. At any moment, you have the chance to break out of this mode of thinking that is trapping you. You don’t need to know, and you certainly don’t need to be right to make consistent money in trading.

You have to trust me on this; things will surprise you if you just let them happen as they may! When we become the scientists of our own lives, we free our minds of the emotional stigma associated with mistakes, failures, and being wrong, and instead, we let curiosity and opportunity enlighten our lives.

Failure is just a matter of perception.

So ask yourself the question: are you genuinely trying to be successful or are you merely trying to avoid failure? Your answer to this question can shed light on the reality of the results you are engineering for yourself, in trading and elsewhere.

The Essence Of Trading Psychology In One Skill

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