The "It Didn't Work" Mentality

One of the least productive things you can say in furthering your market research is "It didn't work." I frequently give my clients research assignments, telling them a great area in which they can do research. I might see them again four months later and find out that they are working on something entirely different. When I ask them about the research area in which I had directed them, the response is usually "It didn't work."

I dislike that response because it totally shuts off very productive research as if there is no potential in the area at all. A much better response would be "It didn't work because…"

This sort of response indicates why it didn't work and perhaps even suggests an alternative course of action.

Let me give you a few examples of how this mentality has been used to totally shut down very productive areas of study.

• One of my Super Trader clients came up with what I thought was a very productive profit-taking exit. The exit started out with a wide stop and kept the stop wide as long as the market was moving strongly. However, when the market started to level off or when the advance started to slow, the stop would get much tighter. The net result was that one seldom gave back much profit. Doesn't that sound excellent? I thought so, especially since his system always gave a reentry signal if the market started to move again. However, about nine months later this trader was into a drawdown. I asked how his stop was doing and he said he had abandoned it. When I asked why, his response was "It didn't work when I added position sizing." There was no explanation why, which might have resulted in an alternative solution. Instead, the choice was simply to say, "It didn't work." and move on.
• I had been working with another client in developing a good system. We had discussed high R-multiple trading and he had informed me that he had a setup that could be used in the context I was talking about. He reasoned that this setup would give him signals with profits about five times as big as he was risking. Furthermore, the signals made profits, he thought, about 40-50% of the time. I thought that the signal sounded great and suggested that he only take those signals for a while. In addition, he was to research the exact parameters on the signal and to send me a daily e-mail. What happened? He never took a single signal. Instead, he stopped sending me e-mails and told me that the signal didn't work. I asked him to send me data showing me why it didn't work. His response was that he'd get to it one day, but to leave him alone until he'd gotten around to it. After all, he said, I've already told you it didn't work. Once again, a potential great idea was killed by three little words—"It didn't work."

These are just two examples of dozens that I can think of and every one of them illustrates an important point: the way you think about something can totally change your relationship with an idea. Edison was said to have had 10,000 failures before he invented a working light bulb. He may have said, "It didn't work." after any one of them, but those words didn't stop him. Instead, he determined why the method didn't work and used that information to find another good idea. At no time did he abandon the idea permanently by saying, "It didn't work!"