“I define a mistake as not following your rules. … If you don’t have rules, everything you do is a mistake.” – Van Tharp

If you do not have a quantified process for your trading that includes buy and sell signals with proper position sizing using a trading plan to execute a trading system then your trading may be random in nature. A winning streak could just be luck and an account blow up may be inevitable if you do not have a trading process. A trading system enables back testing and chart studies while opinions and predictions can be just random and requiring more luck than skill. A trader with skill has an edge. The profitable trader creates good risk/ return ratios through quantified entries and use stop losses and trailing stops. to limit losses and maximize gains. A trading system can be an edge as it executes profitably backtested signals over and over again to capture trends.

What is your edge? If you can’t answer that question you may be the beneficiary of good luck or bad luck. In a bull market many new traders confuse luck with skill. Picking one great monster stock is another way of confusing luck with skill. A skilled trader with a process and a system can be profitable in different kinds of market environments and will always manage a drawdown. To define whether your trading is good luck, bad luck, skill, or you are using a robust system you must have a trading method. You must have a trading system that defines the entries and exits to trade your method using entry and exit signals. You also must have trading plan that gives you the rules around position sizing and how to trade your system in the markets. Can your trading be quantified as skill or it is so random that it is luck?

Richard Dennis quote