January 29, 2020

Mistaking luck for skill

The potential for temporary success by pure luck beguiles people into thinking that trading is a lot easier than it is. The potential for even temporary success doesn’t exist in any other profession. If you have never trained as a surgeon, the probability of your performing successful brain surgery is zero. If you have never picked up a violin, your chances of playing successful solo violin in front of the New York Philharmonic are zero. It is just that trading has this quirk that allows some people to be successful temporarily without true skill or an edge—and that fools people into mistaking luck for skill.

The key here is the overwhelming odds of denial when experiencing luck. Associating success with skill feels amazing. And it feels amazing because you get excited about your ability to repeat it. The thrill of a winning trade is not just the money you make; it’s the money you anticipate you’ll keep making in the future.

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