Can My BAD LUCK Impact My Financial Success?

Discover How Your Mind, Not Luck, Shapes Your Success in Trading and Investing.

When people come to me for trading mentorship, one of the most common things they say is that they couldn't succeed or ended up making losses because their luck isn't good in the financial markets. This is the first thing most of them share. I hear this excuse over and over again.

The second most common issue they mention is that while they understand the concepts, they struggle with emotional control.

At that point, I realized something fundamental: understanding financial markets isn’t just about reading charts or mastering technical analysis. It's about understanding the mind. This realization is why I started incorporating behavioral finance into my mentorship programs. Behavioral finance is the study of how psychology influences our financial decisions, and believe me, it explains more than people like to admit.

Let me share a concept today that can change the way you approach not only your trading but many other aspects of life.

The investor's chief problem—and even his worst enemy—is likely to be himself. — Benjamin Graham

1. Introduction to Behavioral Finance

When we talk about trading and investing, most people think it's all about understanding charts, numbers, and market trends. But there’s more to it than just that. Our emotions and biases play a big role in how we make decisions. This is where behavioral finance comes in.

Behavioral finance looks at how emotions and psychological factors affect our financial decisions. Even if you know all the technical details, your emotions can sometimes push you to make the wrong choice. This is especially true in the stock market, where fear and greed often take over.

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2. Introducing Self-Serving Bias

One common behavior in trading and investing is something called self-serving bias. This is when we credit ourselves for our successes but blame outside factors for our failures.

For example, if a trade goes well, we think it’s because we’re smart or skilled. But if the trade goes bad, we say it’s due to bad luck or something out of our control. This happens not just in trading, but in many parts of life.

Self-serving bias makes us feel good when things go well, but it stops us from learning when things go wrong.

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3. Self-Serving Bias in Trading and Investing

In trading and investing, self-serving bias shows up a lot. When traders make a profit, they often think it's because of their skills or great strategy. They start to feel confident and believe they can beat the market every time. But when they face losses, they quickly blame it on things like bad market conditions, bad luck, or unpredictable events.

For example, if the market drops suddenly, many traders say it was "bad timing" or "bad luck," instead of reviewing their own decisions. This stops them from looking at their mistakes and improving their strategy.

Over time, this bias can make traders overconfident or, on the other hand, constantly frustrated, thinking the market is against them.

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4. Impact of Self-Serving Bias on Financial Outcomes

Research published in the Journal of Economic Perspectives revealed that investors who overestimate their abilities tend to trade excessively, and this overtrading reduces their returns by up to 7% annually . The cost of this overconfidence is real and measurable.

Self-serving bias can hurt your financial success in the long run. When you give yourself all the credit for wins and blame external factors for losses, you miss out on learning opportunities. This can make you overconfident after a few lucky wins, leading to bigger risks without proper analysis.

On the other hand, constantly blaming bad luck for losses can make you feel helpless. You might start believing that no matter what you do, the market is against you. This mindset can stop you from improving your skills or changing your approach.

The key is to stay balanced. Instead of blaming luck or giving yourself too much credit, it’s important to reflect on both wins and losses. Only then can you grow as a trader or investor.

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5. Steps to Overcome Self-Serving Bias

Here are five evidence-based steps to tackle self-serving bias and improve your trading outcomes:

1. Keep a Trading Journal: Writing down your trades—along with your reasoning behind each trade—allows you to objectively analyze your decisions. A study from The Journal of Finance shows that traders who keep a journal improved their decision-making by an average of 12% over a two-year period compared to those who did not track their trades .

2. Use Metrics, Not Emotions: Rely on objective data. Always measure your success by metrics, such as risk-adjusted return, Sharpe ratio, or maximum drawdown. These indicators help you maintain a balanced view of both your wins and losses.

3. Get Honest Feedback: Talk to a mentor or peer who understands the markets. Outside perspectives often reveal things you might be missing. A study in Organizational Behavior and Human Decision Processes suggests that feedback from experienced professionals can significantly reduce bias .

4. Control Your Emotions with Meditation: In a 2020 study by Harvard Business School, traders who practiced daily mindfulness exercises were 18% better at emotional regulation and 25% more consistent in their decision-making during volatile markets . Practicing mindfulness helps maintain emotional control in high-stress environments.

5. Set Clear Rules for Entry and Exit: Create specific, measurable rules that govern your trades. This reduces the chances of making emotional decisions in the heat of the moment.

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6. Conclusion

Self-serving bias is not just a trading issue; it’s a human issue. Whether in the financial markets or life, it’s easy to take credit when things go well and blame external factors when they don’t. But if you want to truly grow and succeed, you have to recognize and combat this bias.

By journaling, analyzing, and regulating your emotions, you’ll not only improve your performance as a trader, but you’ll also enhance your ability to handle challenges in life. The path to success is grounded in honesty—honesty with yourself about what worked, what didn’t, and how you can improve.

Remember, it’s not luck that creates lasting success, but the discipline to learn from both your wins and your failures.

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