How Small Retail Traders Can Make Money

trading profit up

26 Sep How Small Retail Traders Can Make Money

The academic professors argued that you can’t make money trading because of random walk theory and efficient market hypothesis. So, the best way is to put your money in a diversified or an index fund and let the effect of compounding interest do its work for you in the years to come.

For most investors, this is actually a very good plan. You can invest in STI ETF or implement the Permanent Portfolio (PP). It is relatively stress-free and you don’t have to worry about the market gyration daily. However, if you prefer “more action” and still wish to trade, then read on. (Click Here for a Comprehensive Guide to STI ETF)

Let me tell you first… trading is very difficult (I bet you already know!) It is one of the hardest things you can do in life. Very few people can trade for a living and do it professionally as a career. Even large professional managed funds have difficulty beating the market. What makes you think so that YOU are able to do it, sitting at the comfort of your own house without any informational edge or advantage that those big players have?

Most likely you are just a small retail trader. You don’t have a huge capital and you are unlikely to be the smartest guy around (Wall Street attracts some of the brightest minds with PhDs in the world). Trading is a game which you cannot win by just sheer will or determination. If that’s the case, then how can small retail traders like us make money in the market?

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The answer is simple: You don’t play the same game as those big boys.

Some of these institutions who managed the funds are so large that they ARE the market, thus they have difficulty beating the market. Because their positions are so huge, they can’t get in or get out that easily. You also cannot compete with HFTs (high frequency trading) programs. Face the fact, your fingers are just not fast enough.

However, being small has its advantages. You don’t face the same restrictions that many of those institutions do: You are not required to have any specific exposures. Being a smaller retail trader, you are also unlikely to face liquidity issues (if you are trading the major asset classes). Your buy/sell orders have minimal impact on prices.

You are free to roam among equities, futures, currencies, options etc when you see opportunities, as long as you have the skills. Few institutional investors enjoy this freedom and they face certain restrictions. For many of these fund managers, their investing time-frame is in years, while the HFT firms’ time-frame is in seconds or minutes.

So, don’t compete with these big boys. Instead, you can focus on swing trading – 2 to 10 days swings. Firstly, swing trading allows you to filter out the noise created by the HFTs and algos. Secondly, large institutions normally invest and make decisions based on fundamentals and their time-frame is usually much longer (years).

This is based on my personal experience as well. I have tried intra-day, swing and position trading. Swing trading is less stressful and I don’t have to stare at the screen every minute. I believe most of the people reading this have a full-time job and intra-day trading is going to wear you out. You may feel alright for a few days, but try doing it for a few months. Trust me… been there done that. I have far more success and is able to grow my account by swing trading instead.

To conclude, as a small trader, we don’t compete head-on with the big boys, instead we ought to play differently and target a different time-frame – by focusing on the daily time-frame.

I understand the above article is a very general piece of advice and the main “meat” shall be on specific swing trading strategies in the near future – how to look at market structure, how to trade pullbacks, how to assess trends etc…. basically the way I trade. Subscribe to BFP to receive them in the future!


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  • coconut
    Posted at 10:26h, 26 September Reply

    what makes you think the “big boys” are not making any “swing” trade?

    is just your excuses cos you don’t have the time commitment to trade and thats very misleading! so swing trade is easy is totally nonsense.

  • coconut
    Posted at 10:32h, 26 September Reply

    i mean easy as to making money, if easy is per time commitment, then that i agree haha.

    just like gambling, we do enjoy it, don’t we?

    • Alex Yeo
      Posted at 15:34h, 27 September Reply

      Hi coconut, thanks for your comment :)

      Every timeframe, there will be both retails or institutions trading… collectively it makes the market. I mentioned in the article that trading is very difficult. Swing trading is no different too. What I mean is that we should trade in a time-frame such that we have a chance of winning.

      If you are day trading or scalping, you are trading against the Algos… and it is very difficult to compete against them. Their edge is their speed. Of course, there are traders who can make money in scalping, but it is getting increasingly difficult.

      I am full-time internet marketer and I work from home. And I have all the time in the world to trade. It’s not because I do not have the time to trade. Maybe I do not have the skills to really day-trade or scalp. I just do not have success in it! Haha. Besides that, I don’t really enjoy staring at the screen also… so it depends on personality too!

  • coconut
    Posted at 10:27h, 30 September Reply

    sorry i got confuse as to the writer of this post, i though was alvin haha…

    nice to know you Alex, ya i agreed, its all come down to personality.

  • How to Trade Pullbacks (Gold as Case Study)
    Posted at 00:00h, 15 October Reply

    […] my previous article, I talked about how small retail traders can make money and mentioned that I will share more on how to read market structure, how to trade pullbacks etc in […]

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