Of course, most traders do not work in large investment banks. Most traders use their spare time and occasionally try a few trades. In contrast, individual traders are "David", and investment banks are "Goliath", the former lack the basic equipment, logistics personnel, research conditions, latest information systems, analysis software, and hardware, and also lack the competitive environment of colleagues.
But David also has some advantages that Goliath does not have. To effectively defeat Goliath in the market, individual traders must fully exert their advantages.
Advantage 1: No need to force trading
Uncomfortable, but higher profit opportunities. This is the advantage of rejecting trading. As Bill explained, individual traders have an obvious advantage over professional traders in investment banks, who have to deal with the supervision of senior executives.
"If you are a trader in a large institution, it is probably hard to say: 'Today's market looks a bit wrong, just read the newspaper', because the boss may come over and say: 'You don't trade, what newspaper do you read?' If traders can reduce 50% of the number of trades, they can usually make more money."
"250 trading days a year, assuming you make one trade every day, do you know what the final result will be? As a result, the key trades are only five, three trades have completely wrong views, making you lose a lot, and two judgments are completely correct, making you earn a lot. The remaining 245 trades are irrelevant. Small profits and small losses."
"In many cases, it is not suitable to enter the market, but you force yourself to trade, and you can only hope to get out of the trap. If you are not careful, you may also establish a position with a very low chance of winning, resulting in a major loss. The real decision of winning or losing is only a few."
"Be sure to understand the benefits of 'watching from the sidelines'. If there is no proper market, if there is no high chance of winning, do not force yourself to enter the market. The key to the whole trading game is to keep the advantage. The bet must be placed on the highest chance of winning. If you always grasp this principle, you can lead."
"Of course, the destructive risk must also be low enough, not to be shaken out of the game because of three or two consecutive losses. So, assuming you are a trader in a large institution, if someone is always staring at you and saying: 'You don't take care of the trading position? Are you supposed to read the newspaper?' The correct answer is 'exactly'. But the management may not listen."
If you operate your funds, you say what you want. All decisions are controlled by you. Similarly, if you are not an in-house trader and engage in business on behalf of customers, as long as the customers are individual investors, there is still a lot of room for maneuver.
"Individual investors will not call you every day to bother you, because they don't care what position you hold. Long, short, or empty. No matter what aspect, you are the only decision-maker: what to trade, when to trade, or whether to trade. I smile because, like you, I have been at this level for a while, and I operate my funds. You, me, or every trader you are going to visit, our performance at some point is 480%, of course, you only want to visit those who are successful. If your operation performance is not 480%, 200%, 80%, or a certain level, it is impossible to succeed."
According to Bill, if you can fully control the trading decisions, the performance of the operation should be ideal, and perhaps better than the professional traders of the bank. If individual traders cannot reach this level of performance, it will be difficult once someone stares at them.
When I discussed this with Kavi Alamoti, the head of the derivatives and arbitrage department of Donghai Bank, he also agreed with this view. I mentioned that my trading performance is not inferior to the star traders of investment banks. About this point, I regret to say that these star traders have more capital than me "a little bit"!
Advantage 2: Information
Individual investors have more and more information, and they are no longer at a disadvantage compared to professional traders, or even in the same position. Therefore, strictly speaking, no one can take advantage of information.
"In terms of the speed of information transmission in 1997, no one can fully digest it. No one can get the information first. Someone sitting in the living room of a small town in Kansas watching TV, he gets the information as fast as the trader in the trading room."
"Ten years ago, because I was in Solomon because I mastered information technology, the advantage was better than most people. My residence also has Reuters and Deloitte information equipment, and only a few traders in New York can do this. Now, this is too common."
"I hope my home is also equipped with information systems, otherwise I have to do the same as other traders, ask the market at the time through colleagues in London, for me, this is equivalent to getting second-hand information. So, through the Deloitte information system at home, I can work at any time and keep track of market developments. Now, almost everyone can get this kind of information, and the advantage of professional traders no longer exists."
Don't let the convenience of information become a negative number. Although you get information as fast as professional traders, they have enough resources to manage information. Before the 1990s, the problem of information was convenience, timeliness, and cost.
After the 1990s, the problem of information has changed completely, and the key is information management. Although you can get information at the same time as Solomon Brothers, this does not mean that you can rest assured. Remember, all the information obtained must be managed, otherwise, it is not very meaningful.
Advantage 3: Flexibility and sensitivity
We all know that behemoths are difficult to adjust flexibly, which can be explained by the law of inertia in physics. There is also a similar rule in the trading field, which is the advantage of "David".
"As a 'sesame green bean', you can quickly adjust the direction of the company. Many small companies operate in many markets at the same time. For example, if a market suddenly has trading opportunities or undergoes structural changes, large institutions may find it difficult to react immediately. The larger the company, the more rubber stamps, and the more time-consuming the adjustment. This is the characteristic of large institutions."
Traders must observe the changes in the entire industry, just as the president of Coca-Cola must pay attention to the changes in the entire soft drink market. Therefore, when laws are amended or other structural changes occur, you are more likely to adjust products or change markets. In your entire trading career, this advantage may only be used once, but it is still worth remembering.
Advantage 4: Pressure
The fate of small traders is completely controlled by themselves, and relatively speaking, they usually do not succumb to the pressure of others. But this may not be an absolute advantage.
"Compared to professional traders, individual traders have less pressure from supervision, and no one is staring at you and saying: 'You have to do this or you should do that.' But on the other hand, there is also no one to remind you of the norms you should have, such as: 'You have to admit defeat immediately, this position is too big, that position is too small.' This may be a negative number."
"As an individual trader, there is no stakeholder supervisor to provide you with advice. You may say, 'This is a great trade, I have to stick to it', but in large institutions, there is usually an enthusiastic supervisor who tells you, 'This position is okay, that position is too big, your loss is too serious, you have to exit.'"
Therefore, as an individual trader, you have to appreciate the positive benefits of external pressure (such as mandatory norms), so you have to cultivate self-discipline.