Dealing with Failure

Nov. 4, 2020

A few weeks ago, I started an Experiment. I put some robots on a small account in order to see how fast it could grow.

How fast is it growing?

It’s not. It’s mostly lost money since I started.

What a failure.

It reminds me of my coaching days.

Back then, I’d take on a new student with a ton of potential, do some intense training, and then they would play a tournament.

After the first match, they would be crying. And the parents would want a meeting. And all would be lost.

Over one match.

Ninety-nine percent of all players lose when they enter a tournament. One player wins the trophy and the rest do not.

Does that mean 99% of players are failures?

Of course not.

Losing is a part of playing. If you can’t take losing, you can’t play.

Did the family not know that?

The same goes with trading.

Even if you have a great system, you win maybe 50% of your trades. That’s still a lot of losing. And there’s still a very good chance that the first trades you take with that system are going to lose.

[Interesting Note: Systems with 50%-ish winning percentages seem to be the most robust. Losing half the time or more is one of the most important indicators of success in the future.]

This is true for high-percentage systems, too. A 75% win rate still loses one out of four. And systems with 75% win rates commonly have losing streaks of 4 or more trades.

Think of it this way.

What if I told you that a guru from Silicon Valley had created a portfolio of secret robots that is up 80% in 2020?

Would you take those results?

Well, guess what? That same system was negative or break-even for the first two months of the year.

See the beginning of the Equity Curve? Nothing but failure.

How many traders would give up in that two month period?

How many angry emails would traders send the guru complaining about his bogus system?

The truth is: this system has breakout principles. And breakouts don’t have easy Equity Curves. Breakouts go in fits and starts and do nothing for the longest time.

And then they “break out”.

And everything is fine.

That’s what you tell parents when they call meetings about one tournament loss.

That’s what you tell yourself if your system with guaranteed dry spells goes through a dry spell.

My Experiment is down about 8% since I started.

Is it a failure? Should I spend my weekends crying in a darkened room?

What do you think?

But more importantly, is there anything we can do about it?

We’ll talk about that in the next newsletter.

Talk soon.

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Disclaimer:
It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable or that they will not result in losses. Past results are not necessarily indicative of future results. Examples presented on these sites are for educational purposes only. These set-ups are not solicitations of any order to buy or sell. The authors, the publisher, and all affiliates assume no responsibility for your trading results. There is a high degree of risk in trading.

HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER- OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.