Luck vs. Decision
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A trade outcome contains both information about our decision and an element of randomness. A good decision can lose money, and a poor decision can make money.
Decision Quality
We should evaluate the decision using the information and rules available at the time, not only the final price outcome. This is especially important when the sample size is small.
Why This Matters
If we confuse luck with skill, a lucky result can reinforce a bad process. Conversely, a normal losing outcome can cause us to abandon a sound process prematurely.
A professional trading record therefore needs more than profit and loss. We also need information about the setup, risk, execution, and rule adherence.
Key Terms
Luck, decision quality, randomness, outcome, process, sample size.
Knowledge Check
- Can a good decision lose money?
- Why can a lucky profit reinforce a bad process?
- What should we evaluate besides the final P&L?