Chapter 2: The Regular Investor and The Trader
Second chapter of the series. If you missed the first one, it is here . There is a short recap below for those who don't want to go back.
The trader's code
Chapter 2: The Regular Investor and The Trader
Quick recap of chapter 1 .
I have the degrees and years in the investment industry, and for a long time I lost money anyway, because analysing a company and trading a stock are two different jobs. And it isn't just me. The SPIVA report from Standard & Poor's shows that over 15 years about 9 out of 10 active funds in the US end up behind the S&P 500 , and in Europe and Canada the numbers are even worse. People with teams of analysts and all the resources in the world lose to an index fund that costs almost nothing. Meanwhile social media tells you every day what to buy and almost never when to sell.
So the question is why. Why do so many people who clearly know a lot about companies still lose ?
Because almost everyone is an amateur at the only part that really matters, which is managing the trade. They know what to buy, the ingredients, but they have no recipe. Giving someone an entry without an exit plan is like giving them flour, eggs and sugar and no instructions. How long in the oven? Do you eat it raw? You end up with a dirty kitchen and nothing to eat.
A trader with a system doesn't sit there at night asking himself whether he should sell. He answered that question before he bought.
I want to explain this with a poker table, because it is the picture that finally made it click for me.
The poker table
Picture a professional poker table in Las Vegas. Thousands of dollars in the middle. The dealer deals, the cards reach you, and you don't look at them.
You push all your chips forward and say all in.
The other players look at you. What have you got? And you say, quite calmly, that you have no idea. You didn't even notice you had cards.
BUT you read that this dealer is one of the best around, you like the colour of the table, and you saw on the news that more and more people are winning by going all in on the first round.
Nobody plays like that. Not even at a table with friends at home.
And yet that is how most people buy shares . Someone in a forum says this company is the future, or the CEO is a genius, and they buy. They don't know what hand they hold. No statistics, no idea what the odds were in the past, no idea when to get out. Just an opinion and the hope that it works.
Most of the time the market goes up , so for a while they are right almost by accident . The wins feed the ego, the losses get the usual excuse ("it will come back"), and this goes on until the drop that empties the account.
Playing blind is suicide in poker. It is the same in the market.
Why I prefer the market to poker
Now the part that made me fall in love with trading.
In poker, even when you look at your cards and find two aces, you still have a problem: the other people at the table. They watch you, they bluff, and with a bit of luck on the river they can still beat you with a worse hand. Your result depends on them.
In the market there is nobody across the table. Your only opponent is you.
And two aces exist here too . There are specific setups on a chart where the odds, measured over many years, are clearly not a coin flip. I didn't take anybody's word for that. I counted. More than 8 million patterns over 30 years on the 500 largest US companies. Most of them are noise. A few are not.
The full count comes later in this series.
The problem is that almost nobody knows how to spot them. People see lines and candles, but not the edge behind them.
I don't play average hands , the risk is too high for what they pay. I sit, I wait, and I watch a lot of hands go by.
When two aces show up, I play.
That is really the whole difference. The regular investor plays every hand, blind, and hopes. The trader folds most of the time and only plays the hands he has counted.
You can find some Aces in my profile :)
Next chapter: getting in, and why keeping it simple is a strength. You will see why most of what you look at on a chart is noise, and what one hand played properly looks like.
TITradingView Ideas17 Sept
The Guardian•Jakub Krupa17 Sept
