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Why are most retail traders usually on the wrong side of the market?

  • #221
  • Aug 4, 2010 6:28am Aug 4, 2010 6:28am
I see the analogy. Look at cable - broke above daily and weekly tops and how many shouted here "short the living shit out of it". Which is the same "it can't go on like this, it must, it WILL change soon" as when people bet on black purely because red came up 10 or 15 times in a row.

Quoting Sauron
I don't see the analogy.

Red comes 20 times in a row. All players bet next on black. So what?
Red has 50% chances, black has 50% percent (we exclude 0, 00 or acts of God). Either all win or all lose.

In forex there are moments when there is a big chance that the price will go higher. The uninformed traders will go short because they don't understand what's happening. The money will change pokets, from a lot of losers to a small group of winners.
forget about tomorrow, just steal away into the night
  • #222
  • Aug 4, 2010 6:32am Aug 4, 2010 6:32am
Quoting spekitox
I see the analogy. Look at cable - broke above daily and weekly tops and how many shouted here "short the living shit out of it". Which is the same "it can't go on like this, it must, it WILL change soon" as when people bet on black purely because red came up 10 or 15 times in a row.
Yes, but people lost going short on cable because the chance of a trend continuation was very big. There is no such thing as "a bigger chance of red over black" on a roulette wheel. If all the people would bet on black everytime after 20 reds they will finish breakeven.
Ok, the analogy is there if you consider only the aspect of betting against a trend.
  • #223
  • Aug 4, 2010 6:36am Aug 4, 2010 6:36am
Ah, I see. Thanks for the clear explanation.

Quoting Sauron
Yes, but people lost going short on cable because the chance of a trend continuation was very big. There is no such thing as "a bigger chance of red over black" on a roulette wheel. If all the people would bet on black everytime after 20 reds they will finish breakeven.
forget about tomorrow, just steal away into the night
  • #224
  • Aug 4, 2010 8:51am Aug 4, 2010 8:51am
Quoting Davidee
I was thinking, this is one of the strongest pieces of evidence to suggest it's all down to the traders themselves and not the big boys out to 'get them'.
As individual traders, possibly, but as a group, the majority cannot do anything other than fail. The food chain can't support another outcome.

Quoting Freetrader J
Money management is the only solution.
MM is no substitute for skill. Skill is the only solution.
  • #225
  • Aug 4, 2010 9:30am Aug 4, 2010 9:30am
Quoting Mr J

MM is no substitute for skill. Skill is the only solution.
Interesting. Is experience more important than skill? Or does being skillful imply that you have a significant amount of experience.
  • #226
  • Aug 4, 2010 10:31am Aug 4, 2010 10:31am
Quoting Troikaone1
Interesting. Is experience more important than skill? Or does being skillful imply that you have a significant amount of experience.
I can only speculate, but I don't think experience alone can achieve anything. What is experience if we don't learn from it, and apply that knowledge? The ability to do that is skill, so it is skill that matters.

Do we need to be experienced to be skilled? That's going to vary betwen activities, individuals, and definition of experienced and skilled. Still, I think it's safe to make a few assumptions:

- A minority probably can become quite skilled relatively quickly.
- Most good traders probably have substancial experience.
- Most people aren't all that skilled, regardless of experience.

To the first assumption, that may be a little misleading. Not all experience is equal; mine has varied significantly in quality, and my biggest leaps can probably be crammed into no more than a few days of study. It took experience to have those realisations, but what if I'd had them sooner or much later? I don't think it's the amount of experience that was the deciding factor, but sheer chance that I made those realisations when I did. In fact, one of my most important realisations was made very early on, and I dropped it for a year after writing off most market participants as "stupid". That lead to my thought process becoming lazy, and a subsequent drop in skill, culminating in a significant mistake. That then shocked me into a period of study and and an injection of maturity, and I rapidly improved again (obviously my own opinion!). Experience? It's difficult to quantify. We tend to look at experience in terms of quantity, when it is probably quality that matters.
  • #227
  • Aug 4, 2010 12:24pm Aug 4, 2010 12:24pm
Quoting Mr J
I can only speculate, but I don't think experience alone can achieve anything. What is experience if we don't learn from it, and apply that knowledge? The ability to do that is skill, so it is skill that matters.
I agree....you can have a lot of "experience" in looking at the markets from the wrong perspective. If a retail trader is getting slammed by the markets, it is because he is missing some critical information about how the markets work. Also, I believe one of the greatest talents that a skillful trader possesses, at all levels of development, is the ability to constantly assess why something went wrong and to learn from his mistakes.
  • #228
  • Aug 4, 2010 3:15pm Aug 4, 2010 3:15pm
Quoting Sauron
I don't see the analogy.

Red comes 20 times in a row. All players bet next on black. So what?
Red has 50% chances, black has 50% percent (we exclude 0, 00 or acts of God). Either all win or all lose.
Red coming up 20 times in a row means one of two things -

It's either coincidence, in which case red is no better or worse a bet than black and we 'should' see a 50/50 split just as we would on the first spin as there is still no logical reason to favour one colour over another.

Or the wheel simply isn't properly balanced, in which case we should see more of one number/colour than another (red in this case).

But what do we really see? The thing that makes no logical sense. We see loads of bets on black, something there can be no logical reason for. It's purely emotion that tells the gamblers that there has been too many reds so it's time for a black. In this situation there can never be 'to many' anything. There can't be to many blacks for the wheel. Likewise the price isn't really to high or to low.

In Forex it's not random like roulette. In Forex if there have been 20 up days in a row then the trend is clearly up and since the trend is more likely to continue than not another up day is more likely than not. But the gamblers pile on to bet on a down day next for the same completely irrational reason as the gamblers pile to bet on black after 20 red in a row, the reason is emotional really.
  • #229
  • Aug 5, 2010 12:54am Aug 5, 2010 12:54am
Quoting Davidee
Red coming up 20 times in a row means one of two things -
There's a third possibility, maybe the wheel like the markets is being manipulated according to where bets are placed.

Quoting Davidee
There can't be to many blacks for the wheel. Likewise the price isn't really to high or to low.

In Forex it's not random like roulette. In Forex if there have been 20 up days in a row then the trend is clearly up and since the trend is more likely to continue than not another up day is more likely than not. But the gamblers pile on to bet on a down day next for the same completely irrational reason as the gamblers pile to bet on black after 20 red in a row, the reason is emotional really.
There could be a perfectly rational explanation for why traders fade a move. Some people subscribe to the theory that when everyone is long it's probably time to sell. Another classic reason is the old mantra "Buy the rumour, Sell the fact". Both those reasons are logical when you think about it, a trend isn't the be all and end all.

I still don't get why people compare trading to games like roulette. Trading decisions are based on probability whereas roulette bets as far as I can see are nothing more than a coin toss, a hope and a prayer, and pure luck!
  • #230
  • Aug 5, 2010 1:00am Aug 5, 2010 1:00am
Quoting Troikaone1
If a retail trader is getting slammed by the markets, it is because he is missing some critical information about how the markets work.
How the markets work or how trading works?

I think we focus too much on what we can't control or ever fully understand instead of concentrating on what we can.
  • #231
  • Aug 5, 2010 2:36am Aug 5, 2010 2:36am
Quoting Davidee
In Forex it's not random like roulette. In Forex if there have been 20 up days in a row then the trend is clearly up and since the trend is more likely to continue than not another up day is more likely than not. But the gamblers pile on to bet on a down day next for the same completely irrational reason as the gamblers pile to bet on black after 20 red in a row, the reason is emotional really.
Gamblers bet both ways, and in my experience in casinos, more people are likely to bet on red to ride the "streak". You suggest that they try to pick tops and bottoms, yet the typical behaviour we see in the markets is piling in the direction of the trend before the business cycle turns.

A trader doesn't lose because they bet with or against the trend. Whatever advantage may be gained by betting with the trend, is easily lost by poor trade execution.
  • #232
  • Aug 5, 2010 11:53am Aug 5, 2010 11:53am
Quoting Mr J
.....the majority cannot do anything other than fail. The food chain can't support another outcome.
Speculators aren't the only participants.
  • #233
  • Aug 5, 2010 12:12pm Aug 5, 2010 12:12pm
I love Mark Douglas.

Mark Douglas says in Trading in Zone relating to why traders dont put enormous amount of hard work in learning and practicing trades before putting live trades-

1) You need absolutely no skill to put on a winning trade. Wow ! As a new traders, this happends that all of random trader put a winning trade and boast of himself.

Success without a plan will eventually result in failure.

2) You can trade in your pyjamas out of your bed. The environment in which it is possible to trade does not convince the trader that you need enormous amount of hard work (just like doctor, engineer etc) before putting first live trade.
  • #234
  • Aug 5, 2010 12:13pm Aug 5, 2010 12:13pm
Quoting pipmutt
Speculators aren't the only participants.
I'm including other participants, but looking at them from a speculator's perspective. Different aims, but the same game.
  • #235
  • Aug 5, 2010 12:45pm Aug 5, 2010 12:45pm
Quoting Mr J
I'm including other participants, but looking at them from a speculator's perspective. Different aims, but the same game.
But they're not speculators. How can they be considered failures at something which they're not even attempting to succeed in?
  • #236
  • Aug 5, 2010 9:33pm Aug 5, 2010 9:33pm
Quoting pipmutt
But they're not speculators. How can they be considered failures at something which they're not even attempting to succeed in?
Ok, "fail" may not have been the best term to use, but I don't care about their criteria for success. I care about where they are positioned in my environment.
  • #237
  • Aug 11, 2010 2:56pm Aug 11, 2010 2:56pm
To illustrate the point according to O and A, around 55% of traders are now long on the EUR/USD after it rallied to around a 3 month high, then started falling.

What's your predictions for the pair and how does that fit with retail trader sentiment?
  • #238
  • Aug 12, 2010 5:15am Aug 12, 2010 5:15am
I don't bother with predictions any more, I just follow price action and go with the flow... I've found that having a bias can be expensive...

Addressing the title of the thread, someone, can't remember who, has already summed it up perfectly:

Hope & fear, if they're out of the money they hope the market will let them off the hook by averaging, moving stops etc. and when they're in the money they fear that the market will take back their profits, so close too early. The pro conversely, fears a losing position could get worse and hopes a winning position will yield a bigger profit... The old chestnut of letting your winners run and cutting your losers. Of course, the retail amateur tends to do the opposite, as some may say, "eats like a bird and s**ts like an elephant."

What I've found has really helped me to start to turn the corner with my trading is stopping trying to pick tops and bottoms.
  • #239
  • Aug 12, 2010 5:39am Aug 12, 2010 5:39am
Quoting Mr J
Gamblers bet both ways, and in my experience in casinos, more people are likely to bet on red to ride the "streak". You suggest that they try to pick tops and bottoms, yet the typical behaviour we see in the markets is piling in the direction of the trend before the business cycle turns.

A trader doesn't lose because they bet with or against the trend. Whatever advantage may be gained by betting with the trend, is easily lost by poor trade execution.
If I may interject, a roulette wheel and ball has no memory, it doesn't know that there has been a series of reds and each spin is a discrete event, therefore every single red/black bet no matter what the number or colour sequence is, is a 50/50 bet (actually slightly less when you factor in the zero or double zero slots - the house edge).

The market on the other hand is a totally different ball game, it is comprised of many participants who do have a memory.
  • #240
  • Aug 12, 2010 7:23am Aug 12, 2010 7:23am
So good luck to you on your quest and don't limit yourself to what a bunch of monkeys tell you, you need to find your own answers[/quote]

Great point!

Excellent post.
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