Mistaking Luck For Skill: A Blunder

Understanding risk is more important than learning to measure risk. A price shock represents the greatest risk for most traders. That risk can be perpetuated if the price shock results in a windfall profit. A price shock, such as 9/11, cannot be anticipated, and any profit that might have been gained is the result of luck, not skill. Traders must realize that the profit could have been a loss; they should assess how their account would have survived a drop of the same magnitude. Mistaking luck for skill ignores the risk and exposes the trader to future risk for which he or she is now unprepared.