Getting Lucky In The Market

I've been accused many times of getting lucky in the market. Whether it be from well-timed trades I've made or how I've positioned myself ahead of significant market moves, luck is indeed something that is underestimated and not talked about very often in this business. After all, how many times can you remember a trader or market guru blaming a successful trade on just pure dumb luck? Frankly, you'd be hard pressed to find many examples.

However, it is true that some traders are indeed luckier than others at times. I personally know a few people that it seems like at times every stock they touch goes up and every stock they short goes down for relatively long periods of time. Why is this the case, and more importantly, is there anything we can do to increase our luck in the market?

In an attempt to answer that, I decided to read "The Luck Factor: The Four Essential Principles" by Richard Wiseman. It is not a trading book, but the principles outlined there are still helpful to traders. In the book, the author believes that anyone can create luck for themselves by adopting four basic habits. I've briefly outlined those four principles below and provided my own thoughts on how traders may benefit from their application:

1. Capitalize on chance opportunities. Richard Wiseman recommends that people get out of their psychological ruts in order to make themselves available to new experiences that will benefit them. Traders must do this often because the market is always undergoing change. What worked last month, last quarter, and last year offers no guarantee that it will continue to work as well. Frequently our bias toward certain stocks, markets, and strategies will work against us. However, being open to new things will offer more opportunity.

2. Respect your intuition. In other words, don't overanalyze your decisions or let them bog down in mental clutter. This is a very important skill set for the trader as well. In today's world, all of us have to deal with information and analysis overload. Everywhere you look there is something or someone trying to tell you what to think or believe. But, your own intuition, based on experience, common sense, old fashioned homework, and skills will enable you to focus on what is really important. Over the years, I've learned to trust that inner voice that tells me something is wrong or right with any trade and that inner voice is far more right than wrong. And, I've also learned that as my experience and skills grow, that inner voice has been getting smarter as well. That's no mere coincidence.

3. Expect good things to happen. The author believes that a positive outlook encourages others to help you and keeps you from giving up in the face of adversity. This is a tough game and one that is going to test every fiber of your personality. Those who do well in life and in trading have positive outlooks. They expect to win and they expect to reach and surpass their high goals. Trading not to lose is something to be avoided at all times. And, while having a positive outlook is important, don't confuse that with just blind optimism about the future. That is a mistake that many unfortunately make. The key difference is to expect you will do good things in the market irrespective of what the market actually does and back those expectations with the work that will get you there.

4. Find the silver lining in "bad luck." When bad things happen, the author recommends focusing on the bright side - i.e. it could have been worse and/or something positive can be gained from the bad luck. In trading, every time you lose money or something goes wrong, presents an opportunity to learn something about yourself and your strategy. For example, when a stock breaks down after you buy it, were there any "tells" present in that stock ahead of the fall that will enable you to find attractive short-sell opportunities in the future? Moreover, all of us experience times where we don't meet our expectations and hit our goals, but over time I've learned that each of those periods have also presented me with an opportunity to expand my knowledge and get better. Use any bad luck you experience as a learning tool.

Beyond these four basic habits, Wiseman also suggests that people keep a luck diary. At the end of every day, you are suppose to write down the good things that happened to you on that day. After several weeks of doing this, you're bound to realize how lucky you really are and it will help you become more grateful for the good things that routinely happen. As many of you know, I've already stressed the importance of keeping a trading diary. Part of doing so means that you not only focus on what is going wrong and areas you need to improve but also to recognize when you've been lucky so that you can be grateful for those times as well.

The fact of the matter is that you ultimately discover the most important thing about having and getting more good luck - the harder you work, the luckier you're going to get. Capitalizing on opportunities, trusting your intuition, maintaining a positive and confident outlook, and learning from when things go wrong are all important parts of the process.