IG Community Blog

Is it luck or is it skill?

 You spend a great deal of time selecting your next trade. You have been watching this share for some time you like the fundamentals. This company is really going to take off.

You check up on all the broker recommendations… No sells, one neutral and 7 strong buys.   

You do your technical analysis, you wait, you do not rush in, you enter at what you believe is the right time.  The SP starts going up, you are happy with your selection and all the work you put into making sure this was going to be a good trade.

 At 4 o’clock you check up on this beautiful trade and it’s crashed like a stone. It’s on the floor. Elation turns to misery, why, you ask yourself, what happened. Well what did happen, some randomly damaging news broke out unbeknown to you or anybody else but aligned to your share and totally out of your control, crashed your share.      

Yes that bad luck, really bad luck.

 

Another occasion you happen to hear about a junior company from a friend or on a bulletin board.

It’s a cheap penny share, you can pick 100000 shares for a few hundred pounds the next day and all of the next month it shoots up like a rocket … you sell with decent profit. No skill involved but lots of good luck, buckets of good luck in fact, you didn’t even research the company. (Silly) but lucky, lucky, lucky.

 

So with all of this “Is it luck or is it skill” how we can protect ourselves?

1 Always have a plan.  For some this can be   Your Entry.  Your Stop loss. Your Take profit.  

2 Be mindful of how much you are investing or trading, don’t throw the kitchen sink at it. You don’t want to blow up your account.

3 If its shares have a maximum loss you are prepared to accept and never let it go beyond that.

 If it’s F/X, commodities or indices etc. don’t over leverage don’t even think about trading without a stop loss!

The only thing in life that is certain is uncertainty.