How Important Is Luck for the Successful Trader?

I had a winning trade this morning. But, the circumstances under which it occurred raised the question: how important is luck for the successful trader?

Here’s what happened:

Yesterday, I sold the AUDUSD at 0.7016. I had a preliminary target at 0.6800. In the wee early hours of this morning (HKT), the pair suddenly dropped to 0.6730. I have seen enough of these types of price action to know that my best course is to immediately take profits. I did this at 0.6768.

Sure enough, the market bounced. It’s currently trading at 0.6964. So, by being in front of my PC when the pair headed south, I was able to make about 200 pips.

Now, I don’t normally expect trade during the time I liquidated the position. It just happened that I was in front of my computer. You may call it “luck”, and I would agree with you.

I was curious to see whether there have been any scientific studies to determine the role of luck in an uncertain environment, like trading. In fact, two Italian scientists, A Pluchino and A Rapisardo, have done just that. They did two studies:

• One to determine if luck played any role at all (the study found that luck played a major role for success). And,
• What was the most effective strategy for maximising our potential?

  The first study found that only 20 of the subjects held a massive 44% of the successful pie. It also found:

• 50% of the subjects remained at the starting condition.
• Talent was necessary, but not sufficient. Only rarely did the most talented join the most successful. Those that succeeded with those that had slightly above average talent but had lots of luck.

  In the second study, the authors sought to answer the question what was the best way to fund success. They found:

• The funding needed to provide an environment which with opportunities.
  It had to also provide a good education.
• They determined they needed an optimum strategy to distribute funds and resources.

  It seems to me, that a better take of the question “what is the most effective strategy to maximise our talent”, would be to consider the role of deliberative practice.

In this regard, there have been studies that show that talent is important.

So, if two traders put in the same amount of work, the more talented will be the most successful. On the other hand, talent without work will fail. Again there have been studies to show that:

a more talented person will be less successful than one less talented – if the latter engages in deliberative practice.

What I take from all this is: to succeed, we need to be prepared (do the work) in order to take advantage of the good luck that comes our way. Under these circumstances, the luckier will be the more successful.

For a review of the Italian study go to:

https://blogs.scientificamerican.com/beautiful-minds/the-role-of-luck-in-life-success-is-far-greater-than-we-realized/

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