Warrior Trading Blog

The Importance of Failure

The Importance of Failure


As I began learning to day trade I lost over thirty thousand dollars in a matter of months.  Over the course of my first year trading I struggled to find success.  The year felt like a failure.  In reality, it was the culmination of many small failures on a day to day basis in my trading.  There were days when the market would close and I’d be staring at a four thousand dollar loss on my screen.  These days were incredibly painful.  The winning days never created the intense emotions that the losing days brought out of me.  Losing money in the market is a very personal and humiliating experience.  It’s hard to separate the loss of money from my personal identity and my sense of success or failure as a person.

Ultimately I spent my worst losing days pouring over my charts and my trade history documents.  I was searching for an answer.  Why had I allowed myself to make such catastrophic mistakes and where did I go wrong.  Was there a part of the day I could pin point as the tipping point and maybe next time I’d be able to stop trading and walk away before I cross that threshold into aggressive revenge trading?  After reviewing my data on each of those losing days I would come to a conclusion about my trading.  Many times these were actually epiphanies, major breaks in my development as a day trader.  And they were the result of the state of mind I would be in after having a horrible day.  It must be some horrible combination of financial humiliation and emotional devastation that put me in the sweet spot of creative thinking.  It was like clock work.  I would have a horrible day and that night make a big discovery about my trading that would become the basis for my next hot streak.

Early in my trading career while pouring over data on a particularly bad day I realized a pattern in my trading history.  The only area I was returning consistent profits were on simple momentum breakouts of resistance.  Simple Bull Flags and Flat Top Breakouts.  These patterns were simple and clear.  This became the basis for my first successful trading strategy.  I began to think if I could find a way to generate small profits, to just tread water in the market, I could bide my time until I improved my skills.  I began to say, “Survive until you Learn”.  The more time I spent in the markets the more I learned and the better I became.  It began with finding one strategy that kept me going while I developed others.

Eventually I realized details about my momentum trading strategy from a series of failed trades.  I began to recognize the importance of the time of day, the significance of high relative volume, and the value of a good catalyst.  Over the course of years I have continued to define and redefine my strategies to accommodate changing markets and my added experience.

In many ways I owe my success to the failures I experienced as a new trader.  There is no such thing as an equity curve the doesn’t dip down.  There are ups and downs in trading.  Learning to get knocked down and bounce back is a critical skill for any trader.  The reality is we get knocked down all the time!  Even the best traders are going to be wrong 1/5 of the time.  There is no such thing as 100% accuracy.  Good traders learn to be good losers.  We have to learn to accept losses quickly and calmly.   They are, after all, an every day event in the life of a day trader.

I’ve had months where on the last day of trading I lost my entire profit for the month.  I’ve given back a month of hard work in a matter of hours.  I’ve been knocked down in the market more time than I can count.  But every time, I made the slow and steady recovery.  Getting back on the horse is hard, but it’s the only way to survive.  I took each of these failures as an opportunity to refine and improve my strategy.  Each loss became a lesson in my trading program.  Costly lessons on the one hand, but on the other hand, they were priceless.  My foundation as a trader is built from the lessons I learned in my times of failure and struggle.

Over time I noticed the space between my big losses would get bigger and the rebound from losing days would be stronger and faster.  I still have bad days from time to time.  This is part of the life of a trader.  It can be stressful and difficult to separate myself from the losing day but I’ve had a lot of practice at losing!  Remember to lose gracefully, accept the hiccups, and take them as an opportunity to improve your trading strategies.

In class 9 of our Trading Courses we focus on the Psychology of a Day Trader.  Anyone with questions or comments please feel free to email me [email protected]