Rethinking Failure

It was an early summer morning. Warm air flushed down the gully as we scrabbled over boulders in the early morning darkness.

The plan was to free solo a classic slab outside the city in a massive loop that took us full circle, up and over then back around to the Dan’s super market parking lot we started in.

You probably already know this but, a free solo climb requires you leave the rope behind. In this particular climb, we had decided to scale it as such because of the easy grade. 5.5 is all and part of what makes this climb so enjoyable is the massive exposure with little risk.

Well, the consequences are the same I suppose. Death. The likelihood however was fairly low.

The climb was a success, as you can tell by my writing this now, some years later. What stuck with me, however was the uniqueness of this climb.

Because it is fairly easy, you take on the full risk of the event. This is optimal because it gives you the best experience and while you could die, you probably won’t.

This is in stark contrast to another climb we had done a month prior.

The second climb in this story sits just outside of Vegas. Was a 4 pitch crack on a sandstone wall. It followed a perfect finger crack that from time to time flared open to fist size.

This climb was done in trad style. That means we placed protection (pro) in the crack as we went up. The difficulty of this climb was at the limits of what my partner and I could do.

We took a few whippers.

A whipper is a protected fall where you extend above your last piece of pro (10 feet perhaps, sometimes more) and in the fall, you then pivot around the last bit of pro until your belay catches you and you (hopefully) spring to a stop.

What’s important to understand is that, in the face of risk, we take on tools that allow us to interact with it in a way that benefits us. This doesn’t mean we enjoy the experience of a big whipper. From time to time, the fall is so terrifying that it takes the nerve right out of you and the last thing you want to do is give it anther go.

However, it is also often the case that a solid whipper precedes a good send!

In the case of our big wall climb, the whippers were solid but only served to reinforce our ability to protect ourselves and we continued on completing the route.

In my career as a trader, I’ve traded with many other traders. Both good and bad.

What I often see is what I consider a strange response to stops. In fact, stop outs seem to be the single greatest triggering mechanism for tilt.

Why?

Early on, I too would be a bit annoyed by a stop out. Sure, I get that. (I have also yelled loudly when I have taken a big whipper, nothing wrong with that!) However, fundamentally, stops are thought about incorrectly in markets. Most traders think of them as perhaps a slap on the wrist. Often as an unjust action cause by “terrible price action” or some such thing.

A flawed understanding of risk.

Go to a climbing gym. What do you see? If you look at the lead wall, you should find at least one pair of new climbers trying their hand out at lead.

Typical behaviors are:
– Shaking legs as they move above the last clip.
– Over-gripping as they fear the idea of taking a fall
– Shouting at their partner (take!)

What about the more seasoned?

A more seasoned climber will climb through the fall point. You have to build up to this but, knowing you trust your gear, you climb beyond what your mental limit is in order to allow the wall to tell you your limit. The fall should be a surprise.

These are the best falls anyway. The most fun and most productive. But what do they take? Well, they take time. They take a fair amount of time falling intentionally. You take a lot of “oh man, a can’t get this one” short whippers before you upgrade to the big ones. Those top of route, trying to clip the last bolt, fingers pealing off the wall, beauties!

How about in trading?

Do we not often see the same thing?
Fear grips the positions of the new trader, and many more seasoned as well.

Each tick for or against brings about intensity that alters the view of the trader. Behavior is altered, action is taken. Stops are moved out and profit targets are inched in.

This is the main problem facing retail traders managing their own money.

How do you fix it?
I have no idea.

On one hand, I think there are those who are meant to handle risk and those who are not. That being said, I did not come here just to tell a story. I want to try to help.

1. You should take up climbing. It’s great.

2. Consider actively changing what it means to “fail”.

When climbing, you would never think of taking a fall as failure. You would look at it as the last place you got to in the route. Too many falls on a spot of climb and you will need to come down out of shear exhaustion. While this is a failure, we don’t consider it that. We consider it a “project”. Every climber has a handful or “projects”. These are climbs they have not done successfully yet although they have tried. They have failed, for now.

There is not more to trading well than stop taking.

People talk about positive expectancy systems and having a business plan. While I have both of those, and I believe they are important, what I see ruin them both is the inability to manage stops. It’s that simple. I wish it was more complex.

Markets are random enough and, in most cases, move enough that if you get involved reasonably well enough times you will do fine, if and only if you manage those losses. Like climbing, the more times you are able to return to the route, the more likely you are to eventually climb it. You’ll just get stronger. That is a fact.

Taking stops.

Lets rethink what it means to take a stop.

What if taking a stop simply means, in this moment, the hold you were on didn’t hold? You simply lost your grip on that one. No sweat.

What if taking a nice big stop heightened your senses, dialed you into the present moment? Made you more focused on what you need to do to trade well in this environment? Maybe that means save your energy, maybe it means re-engage in a different way.

What if taking your stops was the single most powerful thing you could do as a trader. What if this is the single thing that would set you on a new path of enjoyment in markets. What if you came to terms with the fact that a stop is simply a mechanism for you to try again, to continue to enjoy the artform you enjoy?

I love stops. I love taking them.

This will sounds strange but, I like taking stops more than winning a trade.

Why?

Anyone can win a trade in a random set of data. Not everyone can enjoy taking a good stop.
It makes me special and it can make you special too.

In climbing, the difficulty of the route you can climb (particularly in trad/mountaineering) is determined by fitness levels divided by nerve. Nerve being the amount of exposure you can take and the size/intensity of the fall you muster.

Trading is the same.

Trading size equals account value divided by max stop size you can handle without loss of nerve.

Let’s not make this a macho-chaco competition however. We are all in different places and need to account for that in how we trade. My point is not “grow some balls”. My point is “Trading success is linked to ones ability to handle intensity”.

My hope, in writing this is that you would consider than this factor plays a big role in who walks away from markets a “winner” and who doesn’t.

Before the market opens tomorrow, forget looking at the currency pairs or vix or whatever macro thing people say is important. Instead, visualize yourself getting stopped out hard. Imagine a good short trade you get squeezed in. Imagine massive stop outs.

This way, when it happens, you’ll keep climbing.

Leave a Reply