Ever since fully understanding the role of randomness in trading, I’ve made it a point to mention it to any who will listen. It makes an appearance in both Options classes I teach for Legacy, it’s part and parcel of a discussion on system development, and it’s a core focus during mentorships I have the pleasure of participating in.

My recent re-reading of Nassim Taleb’s Fooled by Randomness reminded me of an entertaining tale that sheds light on randomness’s role and what my objective should be as a profit-seeking trader (emphasis is mine).

“Imagine an eccentric (and bored) tycoon offering you $10 million to play Russian roulette, i.e., to put a revolver containing one bullet in the six chambers to your head and pull the trigger. Each realization would count as one history, for a total of six possible histories of equal probabilities. Five out of these six histories would lead to enrichment; one would lead to a statistic, that is, an obituary with an embarrassing (but certainly original) cause of death. The problem is that only one of the histories is observed in reality; and the winner of $10 million would elicit the admiration and praise of some fatuous journalist (the very same ones who unconditionally admire the Forbes 500 billionaires). Consider the possibility that the Russian roulette winner would be used as a role model by his family friends, and neighbors.

While the remaining five histories are not observable, the wise and thoughtful person could easily make a guess as to their attributes. It requires some thoughtfulness and personal courage. In addition, in time, if the roulette-betting fool keeps playing the game, the bad histories will tend to catch up with him…

The reader can see my unusual notion of alternative accounting: $10 million earned through Russian roulette does not have the same value as $10 million earned through the diligent and artful practice of dentistry. They are the same, can buy the same goods, except that one’s dependence on randomness is greater than the other…”

New traders aren’t able to differentiate between whether their performance (profits or losses) are due to randomness (aka luck/chance) or skill.

The revelation of skill requires experience.

And experience is a byproduct of time and repetition (aka the number of occurrences).

The longer you trade and the more you trade, the easier it is to discern whether your performance is driven by randomness or something greater, something more substantial and, thankfully, repeatable – SKILL.

Here are three critical takeaways to Taleb’s thought exercise:

One: Veteran traders are often quick to dismiss those who win big by betting big. Such an outcome isn’t a product of their skill, system, or intellectual prowess. Instead, it’s one of the five out of six results that could be experienced playing Russian roulette.

Two: Talks of position sizing and risk per trade of necessity mention risk of ruin. That is, the risk that the trigger you’re pulling eventually puts a bullet in your money brain. Risking 10% of your account in a single trade over and over again isn’t brave, it’s dumb because the inevitable end is death to your account.

Three: Sometimes my systems spin their wheels. It’s not uncommon for one to break even or incur a loss over multiple months and, dare I say it, even a year! Do you know how frustrating it could be if I deployed 100 trades over the year for a particular system only to scratch out a modest gain – and then a new trader places a single trades and scores the exact same profit with 1/100th of the effort? But here’s the catch. Like Taleb, I view these identical profits differently because my approach depended much less on randomness than the other.

That, dear readers, should be your goal. To build a system whose positive outcomes are a byproduct of skill, not chance; of edge, not luck.