Luck and Trading

I was at a Chinese buffet restaurant recently as my youngest son turned 3, it happens to be his favourite restaurant.  Anyway, after we had finished we all received our fortune cookies, mine was the following:

“Luck sometimes visits the fool, but it never sits down with him”

What a great proverb when it comes to trading success.  I think there is certainly an element of luck in trading.  For me, when I look back and re-test the stocks I picked at the beginning of each year I am looking to see if my actual performance matches that of my real results.  In this case it has.  However, having made some changes to my current portfolio in my mid-year shake up, had I had these new additions instead of the 5 I replaced, I would be significantly ahead.  Perhaps it is just unlucky in terms of which stocks shoot for the moon, while some underperform?  I am not complaining, I am beating the Index average by some way and particularly with the use of leverage, but there is a little element of luck when you are basing your choices based on fundamentals alone.

Besides that though I think that is the only place that luck can live in my trading system.  Psychology is the biggest part of trading, not luck.  Luck can visit, but rarely stays for the long hall.

Same with risk control, there is another saying:  “there are bold traders and old traders, but there are no old bold traders”.  Doesn’t that capture risk control well?  No old bold traders, as bold traders take on too much risk and get wiped out on “bad luck”.

So in conclusion, I believe there is an element of luck in trading from the point of view of stock picking, but beyond that we must be systematic, emotion free robots if possible, we must have our long term hats on and think years in advance in terms of growing our accounts and overall wealth through trading.  After all, there are no short cuts and we cannot rely on lady luck, we can only reply on tested and trusted systems.

To our success,

John