Interesting question. And the answer is largely based on human psychology.
Beginner’s luck is just that…luck. Any monkey can place a trade and hope for the best. They have a 50-50 chance more or less on any individual trade. So, if they continue to place trades it is possible to hit some kind of winning streak. It’s as simple as that. But even though any monkey can place a trade, no monkey can continue to see success without a proper balance of method, money and mind-set.
The truth is when most people start out they don’t think trading is that tough, so they tend to jump right in. When they do, they have no real notion of what risk management is or what it means to have an edge in the market. They have no real sense of what thinking in probabilities means. In essence, they are clueless in terms of what it takes to succeed in the long run.
So, they might enter a trade, very likely risking a large amount of their account. On occassion, they hit a winner and because they had a large position size, the money rolls in. This, in turn, convinces them even further that trading is not difficult and continue to trade in the same way. They have just received positive reinforcement for bad behavior so why shouldn’t they continue?
When they do continue, they may hit another winner and become even more euphoric, risking even more and more as they go. Eventually the luck will run out. When it does, they have no idea what it means to take a loss in the market. They might not even have a stop in place. But assuming they do have a stop, they will probably move it to give the trade more room to turn around. They’ll keep moving it until the trade does turn in their favor or until the loss becomes so overwhelming that they cannot take the pain anymore and close out the position for a larger loss than they could have ever dreamed possible. What would be even worse, though, is if the trade did turn in their favor. Then, psychologically, they are completely tarnished because they have just been unknowingly convinced into the thinking that the worst possible habit to have actually works.
The luck runs out because they have no idea of what risk management is all about. They could be right 90% of the time and still go bust because they don’t control the down side. They ultimatley end up giving their losers all the room in the world to breath and eventually cut their winners short the second they have them. They eventually lose because they unwittingly give into fear and greed.
This is why the only chance you have in trading is to educate yourself first, and then take babysteps as you progress.