Similarly in trading, a trader has winning and losing cycles, with strings of mostly winners or strings of mostly loser like a trending chart pattern. Is trading really based on luck? Is it really bad luck that cause traders to lose money? When bad luck strikes, the more eager you are to make the money, the more likely you are to lose it, true?
Luck plays a part in trading, but a successful trader cannot depend on luck alone. But why is it that once you start a losing trade, a whole strings of losers come along?
It is because when you are eager to make the money, you tend to deviate from your strategy and create mistakes which will led to further desperation to make back the losses, worsening the situation.
For example, trader A has been making good money for 2 months, then he hit a loser. Refusing to believe that he is wrong due to his fantastic record in the past 2 months, and as he has his winnings as a buffer, he held on to the position as market continues to move against him. When he finally bite the bullet and cut his losses, he made a big dent in his account and his ego took a big dent too. Eager to make back the money to prove that he can trade, he traded again and again market went against him, afraid to lose money, he decided not to realise his loss and to wait for some retracement, but the retracement did not happen and market plunged further. He then decided to buy some more to improve his average price, hoping to get out of all the positions together. But that did not happen, and when he finally cut his losses, he had lost his 2 months profits due to the increased exposure from averaging down.
Now he is desperate to make back his money, he initated a trade and it turned out a small profit. And he did not want to take it, wanting to ride on it to make back his losses. Then market reversed and he ends up with yet another loser. Now that his account is in the red, he decided to increase his trading size to make back the money quickly, and as he becomes so highly leveraged, his account was wiped out in one big market swing.
Trader A then goes to the temple to pray to improve his luck.
The elements of luck, instinct and gut feelings caanot be ruled out in trading, afterall it is an art and not a science. However, a trader must have a strategy and he must not let his emotions deviate him from his strategy. He know how many lots to trade, how much of his account to risk, and when to cut his losses and to follow his strategy at all times. A trader must realise that he cannot have 100% of his trades right and he needs to cut out the unprofitable ones at the minimum loss.
A successful trader requires not just the skill to call for the right trades but also to condition his mind to follow through his strategy.
“The warrior who is prepared for battle has no fear for the thing called Luck”
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