The Small Hungry Retail Investors : Why Professionals Laugh at the Little Guy

I remember the first conversation I had with what you could call a “professional trader”, someone who had been in trading for more than 5 years with a solid track record. This was several years ago (MQL4 had been out for a few weeks) but I still fondly remember this conversation with great detail. This guy – who I will not mention by first name to protect his privacy – took the time to have a five hour discussion with me about algorithmic trading, trading system development and long term profitable trading. I learned a lot of things from this conversation through the years – mostly in retrospective – and today I can explain and understand many of the things he said to me. Today’s post will be about this conversation and about the great difference between the little guy and the professional, the newbie and the master, the jedi knight and the padawan. I will attempt to explain why professionals view the small retail investor as a joke and the changes that you need to do to turn from one group into the other.

Clearly there are many different types of traders and through the past few years a BIG gap has been created. What anyone would call a “trading professional” which is a trained individual with a long term track record (potentially more than 5 or 10 years) is someone who learned to trade and mastered his/her psychology and technical skills probably before 2006, mostly before 2004. The large majority of professional traders are not derived from a kill-yourself-against-the-screen approach but they are mostly a product of both academia (highly trained professionals in fields such as economics, physics and mathematics) and previous professional trader training (mentoring). A few of course rose from a learn-it-yourself approach but I would have to say that -from the ones I have known – these constitute a minority.

When I had this conversation with a professional trader many years ago I felt like a part of a new generation. I didn’t have any mentors, I didn’t have any formal training in trading or any PhD for that matter and I was attempting to get to learn this by myself. I also had the misfortune and fortune of being part of a generation which had to see the blossoming of cheap retail automated trading, both a curse and a blessing, this would definitely mark the way in which I see trading to a great degree.

I remember how he started to tell me all the work that had been involved in becoming a professional trader and how the focus should be in learning how to trade and not in attempting to become rich. He told me that trading was not very complicated, that it could be made simple but that I would need to concentrate on this and not on the money I would earn. At the time I wasn’t thinking like I do now – oh I wish I had – and I was focused – like many of you probably are – in just finding that something to get me into profit, big profits, right now. Then he said something I remember clearly : “this is why everyone thinks you guys are a joke”. Of course, I became a little bit angry at this remark because I was absolutely convinced that the potential for huge profit was out there and that if he couldn’t get it, it didn’t mean that I couldn’t. I called him close minded, now I know he was right.

The problem of  small retail investors is that they tackle everything different from a professional. The small investor is a greedy profit hungry critter who believes that everything can be obtained with a magic wand. Find the key to paradise and you’ll get there, that’s the mindset most retail traders have. The unwillingness to do work and the idea that trading is something which is “easy” after you dominate a “couple of things” are some of the reasons why the retail trader is way below the professional in trading.

Another thing I believe most retail traders miss is training in complimentary areas to trading which are necessary for success. There is a saying which says that ignorance is bold, certainly true if you consider that most professionals trade the way they do because they have much more knowledge than small retail investors. A professional knows that a Martingale is a meaningless and dangerous money management practice while a small retail investor – in his or her ignorance in statistics – promptly decides to use this technique as it seems promising. A professional evaluates a system to search for a long term edge before trading it while a small retail investor gives the system in the forum “a try” because it “looks good”.

Small retail forex traders are a joke to trading professionals because they do not focus on tackling trading as a profession but they tackle it like a Vegas casino. I have been in the shoes of a beginning trader and I know what it feels like to want to “make it big”, “live from trading” and “achieve financial freedom” in the blink of an eye but certainly the lack of understanding and knowledge are the doom of the retail trader, the reason why they are padawans and not Jedi Knights.

If you want to become a professional then you need to change your mindset. You need to change from looking for the golden key tied to your back to building an understanding about what you want to do. A couple of years after I had this conversation with this professional trader I managed to understand everything he had said, I understood that I need to know what I am doing if I am bound to succeed. No amount of expert advisors, black boxes or manual color systems will make you a professional trader, YOU will make yourself a professional when you make the commitment and put up the effort to learn trading from scratch, to increase your knowledge in mathematics, programming, statistics and economics,  to tackle this problem like a business, not like a leprechaun whose gold has been stolen.

If you would like to learn more about my work and how you too can start to learn about automated trading and the development of sound trading strategies from scratch please consider joining, a website filled with educational videos, trading systems, development and a sound, honest and transparent approach to automated trading in general . I hope you enjoyed this article ! :o)

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