Why Making Trading Mistakes is Important

Making trading mistakes is not only important- it is part of the learning curve. As other disciplines, trading is not making an exception- making trading mistakes is crucial for becoming successful in the long term. As Daniel Dennett says:

Sometimes you don’t just want to risk making mistakes; you actually want to make them- if only to give you something clear and detailed to fix. Making mistakes is the key to making progress. Of course there are times when it is really important not to make any mistakes- ask any surgeon or airline pilot. But it is less widely appreciated that there are also times when making mistakes is the only way to go. Many of the students who arrive at very competitive universities pride themselves in not making mistakes- after all, that’s how they have come so much farther than their classmates, or so they have been led to believe. I often find that I have to encourage them to cultivate the habit of making mistakes, the best learning opportunities of all.

As in trading- the best way to learn to be successful- you should commit to making trading mistakes. Practice is the most crucial element that will help you become a consistently successful trader. It is not theory or other people’s/mentor’s advice. Although, they could be extremely precious tools and saving you thousands of dollars in other costly mistakes, they should not be taken for granted. In a field like trading, the experience is the most important element of the puzzle that will bring you closer to your goal. As Daniel continues:

First the theory, and then the practice. Mistakes are not just opportunities for learning, they are, in an important sense, the only opportunity for learning or making something truly new. Before there can be learning, there must be learners. There are only two non-miraculous ways for learners to come into existence: they must either evolve or be designed and built by learners that eveolved. Biological evolution proceeds by a grand, inexorable process of trial and error- and without the errors the trials wouldn’t accomplish anything. As Gore Vidal once said, “It is not enough to succeed. Others must fail.“

The last two sentences couldn’t be more true for the trading field. As a zero-sum game, for every winner there must be a loser. But, as an aspiring trader, you must be willing to accept the sporadic losses along the way. The faster you accept your mistakes, the better learner you would be. And the better learner you are, the faster you will become a consistently successful trader. That is what we all are after and that is what just a small percentage can achieve. As Daniel Dennett wrote: ” The chief trick to making good mistakes is not to hide them– especially not from yourself. Instead of turning away in denial when you make a mistake, you should become a connoisseur of your own mistakes, turning them over your mind as if they were works of art, which in a way they are…Try to acquire the weird practice of savoring your mistakes, delighting in uncovering the strange quirks that led you astray. Then, once you have sucked out all the goodness to be gained from having made them, you can cheerfully set them behind you, and go on to the next big opportunity. But that is not enough: you should actively seek out opportunities to make grand mistakes, just so you can then recover from them.

As most trading books do advice- try to stay away from trading mistakes, I believe that the more mistakes you make in your beginning stages of the trading career (and you openly admit them), the better. There is nothing more frustrating than having a perfect trading strategy and only finding out at a later stage that the trading mistakes you were not willing to accept earlier on, costed you your most valuable asset- your capital.