Do Retail Traders Really Always Lose?
There is a ton of old data that about the trading success of retail traders vs professionals. It is often spoken about as if it were fact, but recent studies performed by Online Trading Academy challenges the notion that retail traders are at a huge advantage, that the independent investor is in a habitual game of catch up, and that the game is so stacked against them that they cannot win.
Most people have heard that 80% of all traders/investors lose money, but have you ever really researched this for yourself? This number is thrown around so often that it goes unchallenged. Peter Swan introduces a new metric, and shows how educated retail investors/traders who use contrarian strategies often outperform the big money managers who mostly use momentum and speculative strategies using other people’s money.
Peter Swan says he did not bring forth this research to extend an academic debate, but to instead show where retail traders/investors can find edge, to point out the missing metrics that are ignored, and so that recognition of the different time horizons will get more attention.
What does this mean to you? It could mean that the retail investor might need to rethink their strategies by leaning towards more contrarian approaches. The data also suggests that the momentum, breakout and trend-following techniques that are popular are not the best way for a retail investor to find edge. He doesn’t go deep into this, but it is easy to realize that long-term investing will produce the best results. Buying quality companies, buying and holding, not getting involved in the fear and greed hype cycle will protect investors.
There’s a way for the retail investor to make money in markets, but it isn’t the information that gets all the hype in the media. Don’t be afraid to use contrarian ideas.
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