The Relationship between Success and Credibility (Part 3)

A trader who never wins has no/little credibility with me. A trader who wins but has a small sample size to show has no/little credibility with me. Today I want to consider a trader who usually wins and has losing experiences to share.

I hypothesize that a high percentage of traders would make similar mistakes given a particular trade or difficult trade situation. Although an interesting concept, in practice I would have a very difficult time ever finding a large sample size of people holding the same option position. As more traders share details about different mistakes, though, the probability increases that some of the [theoretically] common ones will be covered. This can be useful education for that high percentage of traders mentioned above [minding the possibility of curve-fitting if said lessons pertain to overly specific circumstances].

Scarcity makes losing lessons from winning traders especially valuable. I have been disgusted with the absence of losing trade talk in times when the market has gotten really nasty. September 2015 sticks out in my memory. In one month, the market corrected 10% while volatility tripled: nightmare conditions for any positive delta, negative vega trader. I facilitated a six-person trading group at the time and the only one who talked about losing trades was me!

I think losing lessons from winning traders are much more relevant than losing lessons from losing traders. What seems important to losing traders may not actually be: they lose regardless so how would they know? What seems important to winning traders is noteworthy because they usually make it work.

We should be aware that one reason winners brag is because winning sells. I am always on the lookout for conflicts of interest when I hear discussion of winners.

Losing, on the other hand, gives rise to a different set of emotions and perceptions. Nobody wants to be a loser and people do not want to be on a losing team. Dayananda Saraswati said it really well:

     > In life, loss is inevitable. Everyone knows this, yet in the core
     > of most people it remains deeply denied – “This should not
     > happen to me.” It is for this reason that loss is the most
     > difficult challenge one has to face as a human being.

I perceive added sincerity and greater relevance when people share experiences about losing.

I will complete this mini-series next time.