The Difference Between Lucky and Good

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In case you haven’t heard of him, Seth Godin is a business philosopher. At least, that’s what I call him. He’s a seriously deep thinker, and he applies his thinking to the purpose of understanding and improving business and businesspeople.

Most of his endeavors have been in the specialty of marketing. He coined the phrase “permission marketing,” and was one of the first to recognize that, due to new technologies and consumer habits, the entire concept of marketing needs to change significantly, from “interruption marketing” that bothers people and interrupts what they are doing, to “permission marketing,” which is something that people look forward to receiving because it adds value, is personalized, and is relevant.

On December 5th, Seth wrote a blog post, “Confusing Lucky With Good.” I feel this is completely relevant to Forex trading and decided to explore the topic further.

People are wired to accept good things that happen to them as contingent upon something they did, and bad things as something that happened to them without their input. This is human nature.  When something good happens, we are likely to take credit for it; when something bad happens, we are likely to blame it on others.

The problem with this sort of thinking is that we often accept credit for circumstances that really didn’t depend on our actions.

An excellent example of this is the money that was made during the 1998-2000 technology stock bull market. During that time, it was almost impossible NOT to make money. Nearly everyone who participated in that market made money at that time, and for many of us (myself included), it was substantial money.

The Difference Between Lucky and Good

I personally thought I was a genius.

What I didn’t understand, and what many of my fellow traders didn’t understand, is that we were not smart, and we were not talented. We were lucky.

Of course, the technology crash of 2000 made fools of us all, and we quickly learned that lucky was not the same as smart.

This is the fallacy inherent in trading. A string of winning trades may make a trader feel that he is “good,” that he really knows what he is doing, and that may, in turn, encourage him to trade more aggressively.

But when it turns out that he was just lucky, he is apt to get clobbered.

“Good” requires effort, study, and persistence. Godin says that “Success at the beginning blinds us to the opportunity to get really good instead of coasting.”

What he means is, if you are lucky at the beginning, you tend to not put in the work required to actually get “good.” You do not spend the time and energy in learning, which is what is really needed. You do not apply that knowledge to your trading practice, in order to gain experience.

According to another great business thinker, Malcolm Gladwell, author of “Outliers: The Story of Success,” it takes approximately 10,000 hours’ worth of practice to get really good at something. 10,000 hours, broken down into a 40-hour work week, 50 weeks a year, is in the neighborhood of 5 years.

Gladwell breaks apart the idea that there is any such thing as an “overnight sensation.” In his research, he discovered that most such people actually put in thousands of hours of work before they achieved success. He applied this concept to everyone, from the Beatles to Bill Gates, demonstrating that hard work is the key to success – not luck.

The key to talent, as opposed to luck, is that the action is repeatable. If you once have a great winning streak, and then can never again do the same, then clearly you were just lucky. In order to make your results repeatable, you have to have a definite pattern that you can utilize more than once.

Strict adherence to a well-planned trading method can make your results repeatable. On the other hand, if you can’t clearly outline what you did that was successful, then you can’t repeat it, and it definitely proves that you were lucky and not good.

Going back to Godin’s blog piece, he concludes that most successful people did not succeed on their first try, or their second, or even their third. They did not find success until they had put in a significant effort.

Thus, persistence and practice lead to success. Or as the old proverb goes, “Luck favors those who are prepared.”

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