Thomas Edison, when asked about how he invented light, answered that while he could answer exactly about how he did it, he also could tell about 999 more ways of how one cannot produce light! This is a particularly revealing comment as it also says that Edison tried more than a 1000 times before he was successful in producing light.
If we take that into our approach to the markets and examine what we have done, would we come up with such an answer? We do, but in quite a different way. Most traders keep doing one thing after another, chasing down one advisor after another, shifting from one broker to another, changing their trades from one time frame to another, moving from a trading style to a more investing type one and reverting back yet again etc. Etc. They keep expecting the results to change for the better but somehow, it doesn’t. Everything they try seems to be leading down the same familiar path of losses.
So, question is, if it worked for Edison then why is it not working for the normal trader and investor? The answer is rather simple. On the surface they are changing something- new advisor, new broker, new time frame, new stocks etc. Etc- but then they are never changing the one thing that is really creating the results- themselves!
When Edison ran into failures, he realized that there were two things that were likely for the result- one, the approach was incorrect and two, he was doing something wrong with the approach. In this manner he examined every approach of his that didn’t work and realized what was wrong. Most traders only look at one element- the external- and decide that is the reason for their failure. That they continue to make the same mistakes- not having a system to pick the right stocks, no specific method for entry, trailing and exiting, no sense of how to arrive at quantity to be traded, when and where to book losses, how to let a winner ride etc. Etc. These are really the errors that keep repeating and it doesn’t matter how many advisors and brokers and software and time frames change, the results would continue to remain the same.
The enemy really lies within us. We have literally hundreds of ways of rationalising and justifying our actions (or non actions) that it can straddle the entire spectrum of trading thoughts. It is only in hindsight that we realise how wrong we were. But memory is such a fickle thing- and the brain is wired not to store unpleasant memories! It is a way of dealing with life, which allows us to continue living. So, the next time one is faced with a situation, the learning of the last one doesnt come to our aid.
My estimate is that Edison was focused on the final objective (produce light) and was always aware and alive to the individual as well as combined effect of the different approaches that he was using to arrive at the objective. Every failure produced fresh data points- some positive and some negative. He treated them as data points and not as failures. This is what is required from the traders and investors too- that they become aware of all that they are doing.They need to become aware of the rules that they break- and the consequences of that. Those are data points for us to learn from- not to beat ourselves up or forget that they happened because those are unpleasant. If the trade ended in a loss because you didn’t do what was needed to be done- use a stop, trail the trade when it moved, exit at the correct levels etc- then the failure is not an indictment of you as a person. The outcome just tells you about the steps that you missed- and those are data points too.
For being successful traders, we need to become like scientists- examining every aspect of the situation and then deciding the course of action. We need to use the outcome of the action as fresh data points that will reveal to us what can be successful and what will not. We should then use these fresh data points back in our variables to create fresh systems that can produce a new, and perhaps a favorable, outcome. We continue to do this until we reach the final point- create a profitable approach. Once we have this, we freeze it there and keep repeating it until it stops working- which it eventually will.
Lets all take Edison to the markets and hope to prosper.