The role of luck in trading

A warning about haphazard trading and its results

 

       If suddenly you are working in the market using intuition, and you have been earning a lot for the past six months, then this is just wonderful. But since the article is supposed to reveal the role of luck in making money trading in financial markets, it would not be superfluous to mention the most terrible mistake of haphazard trading, whose name is LUCK. Luck will make you a very successful trader, and then it will take away everything and even more. It will happen at the most inopportune moment, and believe me, it will be very painful. This is not just a logical theory, we have seen it dozens of times in practice.

 

       Let's imagine a newly minted trader who felt that the behavior of his cat in the morning gives a forecast of the direction of trading during the day. And the location of her excrement in the tray directly correlates with the Bitcoin exchange rate (XAUUSD). The trader puts equal StopLoss and TakeProfit and trades every day. The capital he managed to raise is $1,000. Our trader is not as simple as it seems and decided not to risk everything, but to bet $ 100 on each trade.

 

       The described haphazardness is, in fact, the usual coin flip. How much will such a trader earn in a year? The answer is yes, and probably a lot!       

Emulation of trading in Excel

To check this, we will enter the conditions in Excel and simulate possible scenarios. On the sixth update of the chart, we managed to get an interesting picture.

Just look at this chart. Stability and uniformity. In fact, we can say: that after 250 trades, one of the 6 traders turned out to be a seasoned professional of stock trading.

A sensation! Education and experience in trading are no longer needed! Fortune-telling on the cat's tray brings 450% per annum with a drawdown of only 50%. We haven't used reinvestment yet.

Emulation of trading in Excel

And what would happen to our trader if he used the simplest money management - risked 1/10 of his account in each trade, i.e. he would use reinvestment?

The result is more than 800% per annum! Isn't it time to get a second cat?! Or will the dog work better?

Try to repeat this experience on your own. But it's better to do it virtually. File TraderSimulator.xlsx attached to the post (in order for Excel to recalculate the data, you can click the "save" or refresh button if you are in a browser).

 

       The collapse of the situation is that our "genius" trader is likely to quit his job in six months and start living on a bigger scale. After all, he started making money with his own mind, and in general this is just the beginning... millions are waiting for him ahead. I don't think it's necessary to explain how much effort it will take to start living the old way again when luck leaves such a system.  Many people can't even stop at the bottom.…

 

       Any action in the life of a thinking person must have a logical justification. The same applies to playing in the financial markets. Your advantage must be justified by something!

 

 

Tug of war

 

       In order to avoid falling into the luck trap described earlier, you need to gain a statistical advantage in one way or another. One of the ways to gain such an advantage is to create a trading system.          

 

         A trading system is a set of rules and conditions for opening a position, controlling it, and then closing it. If the set of rules and conditions do not contain ambivalent interpretations, then such a Trading System can be automated. System trading allows you to eliminate the negative impact of emotions inherent in money games.

 

       Of course, no trading system will remove the influence of luck on the result, the fluctuations will be huge, but if the advantage is really gained and money management does not deplete the deposit, the new peaks of the balance chart will not be able to hide for a long time.

 

       You can and should earn money on the stock exchange, but it requires not only intelligence, but also hard work. The creation and improvement of a trading system is the point of application of the efforts of traders who think about tomorrow.

 

Don't play games with negative mathematical expectation!

Статья впервые опубликована: 04 April 2025

Дата последнего обновления: 07 April 2025