Can Retail traders make money in Stock market?

By | July 24, 2013

Amateur retail traders tend to think that the professional trader or Institutional investor have some sort of secret knowledge/system that enables them to make huge profit in trading. However, the difference between a retail traders trying to make consistent profit  and a professional traders zeros down to the trading mindset and trading psychology.The difference between success and failure for a trader is wafer thin, Lets elaborate with an example

Let us give you an example of what we mean. A relatively new retail trader is given a profitable trading system having a trading  strategy with proper stop loss and target and the trading system  delivers an average success rate of 60%. The retail trader is exited that he  has finally found something that will ensure his success. Over the course of 10 potential trades using the trading system it gives a perfect 60% strike rate. However, the mindset of the retail trader can hamper his individual performance.

In this example, the strategy starts out with 2 winners, then 3 losers, then 1 winner, followed by 1 loser and then finally 3 winners so overall, it gives a good success rate.

The problem is that the retail trader doesn’t achieve these results for the following reasons.

  • After the first 2 winners, he is very pleased with trading system performance and is on the top of the world thinking finally i can earn profit in stock market.
  • But this happiness does not remains long as after 2 profitable trade he has  string of 3 losing trades. These losses jolts his confidence and makes him hesitant of taking any more trades but has not lost hope on the system. Till now he has only 2 winners and 3 losers.
  • On the 6th trade, which we know in advance is going to be a winner, the new trader gets nervous and decides to ‘just watch this one to see how it gets on’. When he sees it is a winner, he kicks himself for not taking the trade.
  • He takes the 7th trade which is a loser and so his mind starts playing games with him again. At this stage, he has had just 2 winners and 4 losers.
  • On the 8th trade, he couldn’t bring himself to hit the button and buy the shares even though he knew deep down that he should strictly follow the strategy. Again, this one becomes a winner and again the new trader kicks himself for not trading this time.
  • The 9th trade he takes and wins on but he loses on the 10th trade because he placed his stop in the wrong place (despite where he had been taught to place them).

So although we know the strategy delivered a 60% win rate over the course of 10 potential trades, the individual only managed 30% because he was trying to second guess the strategy (if you just look at his percentage win rate from the actual trades he took then his success rate was still only 38%). Having personally coached a number of new traders with our trading courses, we see this type of error over and over again. It is usually the mindset of the retail trader that limits their level of success. Once they understand the psychological aspects of trading and are able to be disciplined, trading becomes that much easier and consistent profitability is now attained.

If you see an opportunity that meets your criteria for buying or selling a share, do not hesitate as this type of trading is not the path to success. Constant monitoring of trades and learning from any past mistakes is what professional traders do and hence why they make it look so easy. So First Learn the tricks of trade than earn. Educating oneself is the best investment one can do.

5 thoughts on “Can Retail traders make money in Stock market?

  1. Siva

    This is just what I have been experiencing now!! Great eye opener Bramesh. Thank you.

  2. Immortal

    I’ve have been silently reading your blogs and want to appreciate you for the quality of the content and your emphasis on working towards the psychology than reading or predicting the market direction…I would suggest you to bring forth an article on application of risk management in trades…it’s the spine of trading or for that matter any money management business…it will be a great service to all your readers…keep up the good work!!!

  3. Nambi

    Dear Mr Bramesh, 90% of the traders would have found this article very interesting and appreciated you in their minds. No doubt in it! All your such articles are really fantastic and you are able to understand the minds of amateur traders very well. All the best. Regards. Nambi

  4. Bramesh Post author

    Dear Sir,

    Grass always looks Greener on other side.

    Are you really sure analyzing and teaching is so easy? Try to write a blog and update it regularly for 1 month and you can come again and share your experience with me.

    Yes i do trading personally, Regarding success rate how do you define a success rate, Please tell me your definition of success rate.

    As i can have a success rate of 40% but i can make more money than traders having success rate of 80-90%.

    Rgds,
    Bramesh

  5. Shaileshkumar Chandrakant Mehta

    Dear Barmeshji
    many thanks for this very precious knowledge.I have read & seen many analyst & trading coach but I have met very very few successful traders.
    May be to analyse & teach is easier then to trade.
    Here my question is are you personally really trading or only teaching?
    If trading then what is the success rate?
    Pl. do not feel offended but I am really curious about the same.
    With Warm regards

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