Variance: Luck vs. Skill in the Short Term

I’ve been sitting in this business for twenty-three years, and I can tell you with absolute certainty: if you’ve made money consistently over the past three weeks, you haven’t got a clue whether you’re actually any good at trading or whether you’ve just been shagging the market’s lucky rabbit’s foot.

This is the problem with trading in the short term. It’s a statistical minefield designed specifically to separate overconfident idiots from their money. And the worst part? The universe itself is conspiring against your ability to even know if you’re competent.

The Casino Nearest to Wall Street

Let me tell you a story. 2008. I’m down the pub with an old mate, Dave. Dave had just made £47,000 in four weeks trading the EUR/USD breakouts. Four weeks! He’s buying rounds, telling everyone at the bar how he’d “cracked the code.” Absolute certainty in his voice. He’d quit his job two months prior.

Three months later, Dave had given back £89,000 of other people’s money.

What happened? Dave had confused variance with insight. He’d been riding a favorable market regime—volatile, trending, rewarding breakout traders. The market obliged him for exactly one lunar cycle. Then it didn’t. And suddenly Dave discovered that his “edge” was really just luck wearing a very convincing disguise.

This is variance, folks. And it’s the reason I drink.

The Problem With Time Horizons That Are Too Short

Here’s what they don’t teach you in the YouTube trading courses (probably because it would destroy the narrative): in the short term, luck is statistically indistinguishable from skill.

Think about it mathematically. If you’re trading a strategy with a true 55% win rate (which, let’s be honest, is actually quite good), what does your equity curve look like over 20 trades? Could be +15 trades, -5 trades. Could be +9 trades, -11 trades. Both are well within the realm of statistical possibility.

A 55% edge is a fraction of a percentage point. Over thousands of trades, it compounds into genuine profitability. Over twenty trades? Could be anything. Could be a loss. Could be a blowout profit. Could be breakfast.

I’ve seen traders with genuine, proven edges get absolutely demolished in a single month because variance decided they were in for a rough ride. And I’ve seen absolute charlatans make six figures in a fortnight by pure, dumb luck.

This is why the retail industry is so wildly profitable—for the brokers, not for you. They know you can’t possibly distinguish between the two, and neither can your lizard brain’s dopamine feedback loop.

The Tyranny of the Benchmark Period

Here’s where it gets properly mental: you’re judged by an arbitrary time period that has almost nothing to do with actual skill.

Your mate text you about his monthly return. Your trading app shows your drawdown in real-time. Your boss wants to see year-to-date performance. But these are all meaningless horizons for determining whether you actually know what you’re doing.

Think of it this way: if I flipped a coin 10 times and got 7 heads, I’m not a “good coin flipper.” I’m just experiencing variance. But if I tell someone I got 70% heads in my last test, they’ll think I’ve got supernatural powers.

Trading timescales between one day and three months? That’s coin-flip territory. You’re not distinguishing signal from noise; you’re just living inside the noise and hoping it trends your direction.

The truly dangerous traders aren’t the ones who lose money. It’s the ones who make money in these short windows and genuinely believe they’ve found the holy grail. Because now they’ll lever up. Now they’ll risk £10k per trade instead of £1k. Now they’ll blow up with absolute conviction.

I’ve seen it a thousand times. The confidence is always inverse to the edge.

So How Do You Actually Find Skill?

Right, so the million-pound question: how do you know if you’re talented or just temporarily lucky?

Sample size. That’s it. That’s the answer. It’s boring, it’s unsexy, and it won’t make for good TikTok content, but it’s the only thing that matters.

You need enough trades that the law of large numbers actually starts to apply. For most Forex strategies, we’re talking about 200-500+ trades minimum before you can reasonably assume you’re not just riding variance. Some would argue 1,000+. I’d say if you haven’t survived at least two full market regimes, you literally have no idea what you’re doing.

And here’s the kicker: that’s two to three years of actual trading for most people. Not backtesting. Not demo. Real money. Real emotion. Real market structure.

Do you know how many retail traders are still interested after three months? Practically none. Do you know how many have given back their profits and then some by month eighteen? Almost all of them.

The Only Honest Truth

I’ll level with you because I’ve got nothing to prove and everything to lose by being honest in this industry. Most of you reading this won’t make money trading. Not because you’re stupid (well, some of you are), but because the sample sizes required to prove skill are so large that time and psychology will destroy you before statistics ever get the chance.

You need a Forex calculator to figure out your position sizing. You need to understand variance to survive it. But what you really need is the intellectual honesty to admit that your three-week winning streak means nothing at all.

The traders who actually make money aren’t the ones bragging about their monthly returns. They’re the boring gits keeping spreadsheets, trading tiny positions, and quietly compounding for years. They’re the ones who’ve survived downturns. Who’ve seen multiple market regimes. Who’ve kept records for long enough that luck mathematically couldn’t have been the primary driver.

So: are you skilled or lucky?

Honestly? You probably haven’t been trading long enough to know yet. And that’s the most important thing you’ll read all week.

Now stop checking your P&L every five minutes and go read a book.