Good morning, traders…

Jeff here.

The last several trading days have reminded me just how unpredictable the stock market is.

News of China’s major stimulus package followed by Israel’s ground invasion of Lebanon has completely rocked the financial markets in either direction. 

But you would’ve needed a crystal ball to predict any of this. It’s no different than betting on the outcome of a huge global sporting event.

You see, the stock market is like a big game with tons of money involved…

Think about it: A “game” is defined as any competitive situation with rules and stakes that ends with winners and losers.

Sound familiar? It should. Trading the stock market fits this definition perfectly. 

Once you understand this, you can potentially trade better by simply understanding how the game is played.

But there’s a catch…

In any game, two things matter more than anything: luck and skill. 

And while we’d like to think it’s always our fine-tuned skill that causes us to win and bad luck that causes us to lose — this is false.

Sometimes, you’ll get lucky in the stock market, pure and simple. Other times, you can do all of the preparation in the world and trade perfectly, only for the market to turn in the other direction and humble you into a (truly unlucky) loss. 

Over the long run, great traders will win big. But in the short term, there isn’t a direct connection between trading skills and financial success in the markets. 

This is a difficult concept for many traders to grasp psychologically, but it’s crucial to do so if you’re gonna be one of the few people who consistently wins in the stock market.

With that in mind, let’s break down everything you need to know about the hidden role of luck in the trading…

The Fine Line Between Skill and Luck

For options traders, skill involves understanding the market, experience, research, and choosing the right contracts to trade (at the right time). 

Luck, on the other hand, is that unpredictable part — the roll of the dice. 

After all, the market is influenced by a variety of factors outside of our control: news events, earnings reports, global politics, and even the weather…

This is where the role of luck comes in.

Let’s say you’ve done your homework and, based on your due diligence, you believe that the price of apples will go up in the near term. 

Naturally, you buy a call option…

But then, suddenly, there’s unexpected news: a new type of fertilizer has increased apple farming output by 10x. 

The supply in the apple market is flooded, causing a decrease in demand. Apple prices drop, and your call option gets decimated. 

Was it a lack of skill that led to this? Of course not.

Even if you conduct perfect research, some things are impossible to predict (like the invention of a groundbreaking new fertilizer). 

This unpredictability is an example of straight-up bad luck in trading. You must understand that external factors (like supply) are entirely out of your control as a trader. 

If you trade long enough, you’ll inevitably face a moment like this one, where bad luck ruins an otherwise solid setup.

So, if luck plays a role, does that mean trading is just like gambling? Not at all. 

In a casino, most games are mainly about chance with little skill involved. The house always wins.

But options trading is more like poker, a game of skill where chance plays a smaller role. And while the best poker players may have a high win rate, they still take losses. 

Trading is no different. You need to know that some days will be lucky and others … not so much. 

That said, there are steps you can take as a trader to allow yourself to get lucky…

How to Set Yourself Up for Luck

Trade the Price Action, Not Your Emotions…

Emotions like fear, greed, and FOMO can cloud your judgment, leading to poor decisions and brutal losses. 

Instead of reacting to the market with your feelings, focus on the price action. Volume and price are the name of the game. 

For example, if you see a stock making lower highs and lower lows, the price action is telling you the trend is bearish, regardless of how much you might want the stock to go up.

By trading based on what the market shows you in real time, you can avoid the traps of emotional decision-making and improve your chances of winning. 

Read Global News Every Day 

Global news events can have a major impact on the stock market. I’ve built my career on trading with a geopolitical focus, which gives me a big-picture view that I can apply to various setups. 

Look no further than the recent interest rate decision, China’s stimmy bazooka, or Israel’s ground invasion of Lebanon for examples of global news events having huge effects on financial markets. 

Reading the news daily helps you anticipate potential market shifts and position yourself accordingly.

And speaking of breaking news…

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Look for Macroeconomic Hints 

Macroeconomic indicators like inflation rates, employment numbers, or GDP growth provide valuable insights into where stocks are headed. 

This is why I’m always watching Bureau of Labor Statistics charts, Fed meetings, etc. 

By paying attention to these hints, you can make better-informed decisions and improve your odds of catching profitable opportunities.

Don’t believe me? “Since 1961, the 44 days a year where there has been major economic news account for over 71% of aggregate equity market returns.”

Since 1961, there have been roughly 15,625 trading days. Out of those, 44 days per year (approximately 2,728 days total) included major economic reports. And those 2,728 days—which accounted for just 17% of the total trading days since—made up a staggering 71% of the stock market’s total returns over the past 62 years.

Focus on these steps and you just might allow yourself to get lucky. 

Remember: Luck favors the prepared!

Happy trading,

Jeff Zananiri

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*Past performance does not indicate future results