The Most Important Factor In Your Success

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The most important factor in your trading success is actually going to be your ability to own your mistakes. It's that simple. Can you own your mistakes?

I'll share a couple quick stories with you. First of all, as I was growing up as a kid, my parents, specifically my dad, became multimillionaires in the aviation business. My parents came from nothing. Both of them came from extremely modest backgrounds. My dad was the first person to ever graduate from college, my mom was the first person to ever graduate from high school in their families. They came from very modest backgrounds, and they built an amazing aviation business, and they sold it when they were in their 30s and they were multimillionaires. 

I watched my dad go from being a multimillionaire to being completely broke in three years and he lost all of the money, or most of the money, trading. Then I went on to watch him make money in business, lose it in trading, make money in business, lose it in trading and you know what, that was the single biggest factor in him losing his money? His inability to own his mistakes, to own his results, to own his failures, he always blamed somebody else. The society we live in today, this society tells us it's always someone else's fault, but in trading, it doesn't work that way. Doesn't work that way really in life, you can blame it on other people, but you ultimately are the one who gets hurt by it and in trading, if you don't own your results, you're gonna fail. 

I'll share another story with you. I have an elite, high end student who's working with me right now. He's extremely talented, he works very hard, smart, he has all the ingredients of somebody who could be very successful as a trader, very successful, but he continually makes mistakes. He continually does not want to take losses on his positions, and I finally had a come to Jesus moment with him where I just said, "Look, I'm gonna be honest with you. If you don't change this behavior, if you don't change it right now, you're gonna blow out. You're gonna lose all your money and you have a wife, who's incredibly supportive of you and your dream, who's sacrificing to help you chase this, that you love very, very much and I want you to think about the pain you're going to cause her when you lose all your money. Because this is what's going to happen if you don't own your mistakes." Now, the great news is he heard me and he's made big changes since then and now he's really turning things around, but for him, this is something he's going to have to watch for the rest of his trading career. He's going to have to monitor himself and make sure that he's ruthlessly honest with himself about his mistakes, that he follows his rules no matter what. If he does this, he's going to do amazing, because he's very, very smart. 

The number one factor for you is your ability to own your mistakes. To learn from a mistake, we must first own it. We cannot learn from it if we don't take ownership of it. This is where many people get into trouble. The problem with blaming other people for our mistakes is that we still suffer the pain of consequences. We still suffer the pain regardless if we blame somebody or not, but we don't get the opportunity to learn from it. The problem is that if we don't learn from it, then we become destined to repeat the mistake again and again and again. Blaming others feeling the pain, blaming others feeling the pain, blaming others feeling the pain. 

Let's talk about what is the mistake in trading. A mistake is not following your rules or following your plan. It has nothing to do with making or losing money. The reason this is important is to truly know how good your ideas are, how good your trading system is. We need to be able to evaluate the system or the ideas on their own. 

When we make mistakes, we contaminate the idea, we contaminate the system, we ruin it with our psychology and because of that we really don't know how we're doing. This is why people system hop, they trade a system, but then they make mistakes and then they don't take ownership for the mistakes. They spend money to learn a system, or they do research to learn a system, and then they don't follow the rules and then it underperforms, and then they're like, ah, this doesn't work, I need to go find something else that works. Now they go find another system, but there's one problem. They take themselves with them to the new system, then they make mistakes there, and they contaminate it and then they think it doesn't work, so they go to another system, and they contaminate that one. The reality is, if they just followed the rules, they would know truly whether the system works or not and they would find out in a lot of cases, the system actually did work. 

Lastly, if we have no rules, or we have no plan, everything we do is a mistake. Everything, because we have no basis of accountability. How do we fix a mistake? We fix the mistake using what we call a mistake procedure. In that mistake procedure, we go back to the moment where you made the mistake, you made the trading error and what we do is we visualize what you're thinking and feeling at the time you made the mistake, and you replay yourself making the mistake. Once you've run through and replayed it, you go back again and when you go back again, this time, you're going to notice your thoughts and your feelings, but you're going to see yourself following your rules in spite of your feelings, in spite of your fear. Your feelings are irrelevant, what matters is your rules. Follow your rules, then see the result having changed as a result of following your rules, then replay it again. 

When you replayed the third time, notice how your thoughts and feelings actually start to be less intense and you have a greater sense of certainty. Follow your rules again, see the positive action or result by doing that and now what you've done is you create what we call a mental patch. A mental patch is when we have a negative memory, we go back and we replay it and at the moment of the negative memory, we replace it with a positive action and notice we did it twice here. By doing this, whenever we go back and we recall that moment of time, we're actually going to recall us doing the positive action, not the negative memory. We always have memories of us doing things the right way, which is affirming the right actions. Doing the right action will lead to more right action. That's why this is key. 

What types of trading mistakes are there? We're going to break it into two categories. We have execution errors, and we have psychological errors. An execution error is having an error on accident, such as entering or on quantity or fat fingering an order, or forgetting to cancel an order, like a stop order or resting order and then getting filled on or it's forgetting a roll your plan did you just didn't remember it or entering the wrong order type. These are things that were accidents, you didn't do them on purpose, they were accidents. 

The second type of psychological error is errors caused by psychological issues, such as having a rule to take profits, but when the price gets to your level, you're like, oh my gosh, this trade is gonna be amazing, and you cancel your take profit. That's an example of a psychological error, you didn't follow your rule. The second is the market trades down your stop loss, but you're afraid of realizing the loss so you cancel or moved to stop. 

The third example is that you have a rule that says if I'm ever down three R a day, in other words I'm down in net and three losses at any given point in the day, I'm done for the day. You go out, you go zero for three out of the box and you're really frustrated and rather than shutting down for the day, you decide to make a fourth trade. You broke your rules. 

These are examples, each one of these you were supposed to do one thing and you did something else. That is a psychological error. We'll be revisiting this in an upcoming Trader Tip Tuesday where we'll go deeper on this topic, but for now, just remember, the most important factor in your success is you owning your mistakes. That way you can learn from it. I'll see you next Tuesday where I bring you more tips like this to help you take your performance to an elite level. God bless, bye.