Trade Like an O'Neil Disciple: How We Made 18,000% in the Stock Market

Chapter 4. Failing Forward

There have been many times when I, like many other speculators, have not had the patience to await the sure thing. I wanted to have an interest at all times. You may say, "With all your experience, why did you allow yourself to do so?" The answer to that is that I am human and subject to human weakness.

—Jesse Livermore, How to Trade in Stocks

As long as the human element is involved in the investment process, then mistakes can be relied upon to litter the landscape of that process. Why do we screw up? Because we're human—a simple answer to a complex problem and perhaps the most difficult aspect of investing to contend with. Failure can result from a single mistake or even a series of mistakes, whether big or small, which often take on a snowballing effect that reaches a final, painful, and climactic conclusion. When failure sets in, and the full extent of the damage inflicted thereby can be assessed, it can be a rather mind-wrenching affair. In the end, however, it can serve as a highly constructive cleansing process. And only by understanding the genesis of our mistakes can we begin to correct them.

In this chapter we examine some of our biggest mistakes, analyzing through them step-by-step as we discuss our thinking and decisions in real time during these periods when we ran into difficulty. More importantly, we show how we gained knowledge by treating our mistakes as useful market feedback, which was then put to profitable use by forcing us to devise ...