Ways To Improve Trading Luck
Improving trading luck is a concept that often raises eyebrows among seasoned investors, as luck is generally considered unpredictable and uncontrollable and most strategies have fixed stop-loss and profit harvesting.
If you are Steven Dux who seem very passionate in gathering info and trading, improving trading luck is probably just "luck" and the same as choosing a tarot card finding great 4-6 trades monthly.
I preferred a mid to long term approach in investing (over 10 years, given my age) so I believe that one's trading "luck" can be influenced by a combination of preparation, strategy, and mental discipline though it is never 100%.
Asymmetric Risk-Reward and Antifragility:
Nassim Nicholas Taleb, author of "The Black Swan," emphasizes the importance of asymmetric bets. Another concept was antifragility which refers to systems that gain from disorder or shocks. Traders can benefit from being antifragile, where their strategies thrive in the face of uncertainty.
People usually give the unexpected Black Swan Event a lower impact than it should so a hedge fund, Universa Investment, advised by him is focused on making outsized gains during a market dip (it was reported to make over 3000% returns during the 2020 market flash crash).
Charlie Munger, Vice Chairman of Berkshire Hathaway, advocates for a long-term perspective and waiting for the right opportunities. Charlie Munger once famously said, "The big money is not in the buying and selling... but in the waiting.".
Be patient and wait for asymmetric opportunities that align with your long-term goals.
Value Investing Principles:
Benjamin Graham, considered the "father of value investing," focused on investing in stocks with a margin of safety. "An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return. Operations not meeting these requirements are speculative." - Benjamin Graham.
I will caution against value investing as I have fallen into many "value traps". Apply value investing principles, seeking investments where the intrinsic value provides a margin of safety.
Risk-Taking and Innovation:
Elon Musk, known for his success with Tesla and SpaceX, embraces calculated risks and disruptive innovation. Elon Musk said "Failure is an option here. If things are not failing, you are not innovating enough."
I was into Tesla for its relentless innovation until its cost-cutting measures to maximize sales of EVs to compete with China EVs. I have been waiting for markets to downgrade it, but the market expectations kept it floating. Consider calculated risks in innovative sectors, understanding the potential for significant returns.
Diversification and Risk Mitigation:
Ray Dalio, founder of Bridgewater Associates, emphasizes the importance of diversification and risk mitigation. "Diversifying well is the most important thing you need to do to invest well." - Ray Dalio.
While I am very concentrated on my investment (like crypto), I do think and focus on allocation monthly. Anything after my emergency funds are being calculated monthly and I would make adjustments to mitigate risks and increase the potential for asymmetric returns.
My Experience in Investing
The turning point in my mindset came when I shifted from being an active participant in my trading journey during the COVID-19 crash. I made a little bit buying out of money call options when the market was stimulated by the government printing of cash.
For those curious about the tangible outcomes of options trading, such as the prospect of achieving millionaire status, it's enlightening to delve into the experiences of successful traders. A great starting point is this informative article Has Anyone Become a Millionaire by Trading Options?
While luck had not been in my way since 2022, I invested time learning about different trading strategies, risk management techniques, and market analysis.
- Risk management became a priority as well. Rather than relying on luck to dictate the outcome of a trade, I diversified many risk investments to safer assets like real estate and fixed-income assets. This not only protected my capital but also reduced the emotional stress associated with trading.
- Mental discipline played a significant role in my journey to improve trading outcomes. I learned to control my emotions, particularly the twin demons of fear and greed. Embracing losses as part of the process and staying level-headed during winning streaks became essential elements of my trading psychology.
- Continuous learning became a mantra. Markets evolve, and staying informed about economic indicators, global events, and emerging trends became integral to my strategy. Networking with other traders provided valuable insights and a sense of community that helped me navigate the complexities of the financial markets.
- While I don't discount the existence of luck in trading entirely, I've realized that relying solely on luck is akin to playing a game of chance. By actively working to improve my skills, adopting a disciplined approach, and staying informed, I've been able to create an environment where success is more a result of strategy and knowledge than mere luck.
In conclusion, the journey to improve trading luck is less about relying on external forces and more about taking control of one's destiny as a trader. Through education, discipline, and continuous improvement, traders can tilt the odds in their favor and create their version of "luck" in the dynamic world of financial markets.
Sky Hoon. Read Full Bio
Website Owner, Twitter-er
He has been trading since 2008. He started this blog to share the journey about option trading. He dabbled in stocks, bitcoin, ethereum (in Celsius Network), ETF (lazy Dollar Cost Averaging) and also built websites for fun. He used this as a platform to share my experiences and mistakes in trading, especially options which I just picked up.