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2024/05
How to turn failed trades into opportunities?
Nobody likes to fail! However, every trader will inevitably experience countless failures during their trading journey. Failure isn’t terrifying; the key is whether you can benefit from it.
Every trader suffers losses due to failures. The fundamental difference between winners and losers lies in their attitude towards failure. We can continuously improve our trading skills by learning from failures gaining experience and lessons from them.
So, since these are failed trades, what can we learn from them? How should we approach this? This, too, is an art.
Stages of Handling Failed Trades
First, let’s divide traders into the following two stages:
1. Before establishing a trading system
Before a stable trading system, failure is the best teacher for beginners. By learning from failed trades, observing, summarizing, and synthesizing, you can gradually explore methods and improve other aspects of the system, ultimately creating your trading system.
2. After establishing a trading system
After years of continuous exploration, summarizing, and synthesizing, a novice gradually transforms into an experienced trader and eventually establishes their trading system. After this, we can divide the failures encountered in trading into correct and incorrect failures.
Correct Failures: This means that the trading system has a relatively stable win rate and loss rate, and the system generates some trading rules. As long as the trades are within the reasonable margin of error and comply with the rules, they can be considered correct failures.
Incorrect Failures: These refer to trades that resulted in losses due to violating the trading rules. These are considered incorrect failures.
Every trading system has its strengths and weaknesses. Once you have your trading system, learning from failed trades allows you to optimize its weaknesses, enhance its strengths, and make the system more efficient.
How to Learn from Failed Trades Specifically?
Depending on the different problems encountered at various stages of trading, you should learn from failed trades in a targeted manner.
1. Before establishing a trading system
Firstly, keep a trading record to review later better. During the review, compare failed trades with successful trades carefully.
What are the differences? Observe and think carefully: why did the successful trades succeed, and why did the failed trades fail? Through continuous summarization and synthesis, abstract a trading model and establish your trading system.
2. After establishing a trading system
Firstly, the failed trades are categorized to see if they are correct failures or incorrect failures. Then, for correct failures, think hard about whether further optimization is possible and how to improve.
If it’s determined that no further optimization is possible, consider these as the cost of the trading system. For incorrect failures, strive to enhance your execution.
You can set up a reward and punishment mechanism: reward for adhering to trading rules continuously and punish for violating trading rules.
By constantly learning from failed trades, you can build a positive expected value trading system and continuously strive to increase this predicted value.
Successful traders have yet to have an entirely smooth journey. To become a successful trader, you must accept that you are human and all humans make mistakes.
Even the most successful investors occasionally need to correct their mistakes. Accepting failure is an essential path to success.
Remember: every trading day is different, with profits and losses each day. Therefore, taking time to reflect is crucial.
