The Average Trader is Stupid!

[sharriss]

I came to this conclusion after having chat with the guy on the other side of my partition at work.

Let me explain...

I had always believed that in order to made money in trading you had to be more intelligent, more informed, or luckier than the average trader - the logic being, if you are making money on a trade then someone else is losing. Or to put it another way, if you think a stock is going to go up then someone else thinks it's going to go down.

But I had this chat with my partition neighbour and he was telling me that he needed to convert £500 into £800 to go on this great holiday he had seen in a magazine. So he put his £500 on a stock that his wife's, Gran's, neighbour's best friend had said was a sure thing.

He's now 40% down, with no exit strategy and confidently stating that it's only a paper loss and it doesn't mean anything until he cashes it in. (Incidentally I strongly believe that if your stock has gone down then you have made a loss, it doesn't matter that your actual cash balance isn't effected until you sell).

Now his story is by no mean unique, there a thousands of small time traders out there with no clue of money management, no idea how to pick a stock and even less idea on exit strategies. Surely if I do have a method of analysing stocks, do have a money management strategy and do know when I'll be selling my stocks even before I buy them, then I'm "more intelligent" than the average trader.

QED

Thoughts and comments welcome...

 

[trendie]

sharris,

the guy over the partition isnt a trader.
for him, it was a one-off action to make some quick-money.
he isnt trading regularly, is he ?? he is not a trader.
he took a gamble of a tip !!! WHAT !!!!!!!

he is a gambler. he lost. no differetn to going to casino and putting it on black.

you appear to be a true trader.
strategy, entry-rule, exit-rule, recognition that losses WILL happen. long-term plan. and you trade over and over again.

"The Average GAMBLER is stupid".

good trading tomorrow. need to be alert. get some sleep.

 

[donaldduke]

But there are hundreds of Hedge Fund managers, who are managing Billions.
There are also the market makers you are trading against.

Most of these are guys are not stupid!!

So even if the average trader is stupid, they collectively arent managing a huge amount of money.

To win at this game you have to be better than 90% of the big money, not the bottom 10% (or
so) which is known as dumb money.

 

[LION63]

Donaldduke,

You are very accurate but you should have added that in order to be more intelligent than the 90%, you have to first assume that you are the stupid one. That way, one will continue to seek more knowledge and fine tune one's system rather than standing still or worse still, slide backwards due to complacency.

 

[roguetrader]

Would have to agree with trendie there, placing X amount of quid on a tip from whoever to make some holiday money doesn't make this guy an average anything, never mind an average trader. It is true there are a lot of people who enter into the market with the notion of trading for a living and with little or no money management skills, but they don't last long in the market. If you are to survive you have to be able to make money off the people who have those skills as they are the ones who are gonna be around day after day.

 

[mheitkoe]

In my opinion trading hasn't anything to do with intelligence.
1) Most traders just started far too early trading the markets without having the proper skills.
2) 80% of traders are greedy which simply lead to major mistakes.

Just my 2 cents

Mike

 

[Trader333]

Isnt trading without ensuring you have the proper skills showing a lack of intelligence to start with ?


Paul

 

[Roberto]

You are very accurate but you should have added that in order to be more intelligent than the 90%, you have to first assume that you are the stupid one.

That's absolutely right, IMHO, and it's one of the most important and under-appreciated points about the whole issue. And it's also the reason why the opinionated people whose motivation, conscious or subconscious, is Being Right will never be able to make steady money out of trading and end up speaking with the voice of criticism, negativity and complaints, as seen from time to time on these boards and elsewhere.

 

[sharriss]

In my opinion trading hasn't anything to do with intelligence.
1) Most traders just started far too early trading the markets without having the proper skills.
2) 80% of traders are greedy which simply lead to major mistakes.

Just my 2 cents

Mike

This is my point exactly - there are thousands of small time traders out there who come in to trading with no idea and leave shortly after, still with no idea and also with no money, having given it to a "more intelligent" trader!