Why so many amateur traders trade only against the main trend?

[Landis82]

Quote from LuckyGirl:

As a quintessentially amateurish trader, my larger concern is how long does it take to change, and what do I have to do to overcome the urge to trade against the trend?

As to why I have continually traded against the trend, unless there is news out on the industry or the stock, it feels to me like the right price has already been established. I keep thinking that the market is efficient. The right price was established yesterday. If the price continues to trend in the absence of new information, I conclude that the price is now wrong. It feels safer to fade the trend than to follow it. Unfortunately, my conclusions have been wrong more often than not.

Great question though. Hopefully this self-examination will be a step in the right direction for me.

Great post that reflects the logic that is often used by the "amateurish" trader.

Unfortunately, INSTITUTIONS have a very powerful influence in the market. They have a tendency to push stock prices far beyond anyone's wildest dreams on the upside, and lower than anyone's perception of real value on the downside . . . They tend to control extremely large positions that are not able to be fully bought ( or liquidated ) all in one day. They also can take some time before they fully pull the "trigger" on a stock, or sector, given that in many funds there is a bit of a bureaucracy involved and "trading by committee" philosophy.

As a result, what you feel has already been fully discounted and is now the actual real value of the stock, isn't necessarily so. Right or Wrong, the institutions aren't able to react as quickly as you, or most TRADERS.

As Victor Sperandeo used to say, "Observe What Is Happening . . . and Assume It Will Continue."

I can't tell you how much VALUE is in that one simple motto.

The other is by a former employer of mine, Paul Tudor Jones . . . "The hard trade ( the one where you are terrified to pick up the phone and call your order in ) is the WINNING trade."

 

[eagle]

They didn't realise that successful trading is not only about successfully pick up top and bottom, but also being able to pick up a small portion of a move. Great chance of success relies on cutting off the greed.

Quote from crgarcia:

And lose big as a result.

I knew traders calling a top in crude oil since $80, and trying to find a bottom in the S&P since the 1400s.

 

[Stosh]

Quote from Landis82:

Great post that reflects the logic that is often used by the "amateurish" trader.

Unfortunately, INSTITUTIONS have a very powerful influence in the market. They have a tendency to push stock prices far beyond anyone's wildest dreams on the upside, and lower than anyone's perception of real value on the downside . . . They tend to control extremely large positions that are not able to be fully bought ( or liquidated ) all in one day. They also can take some time before they fully pull the "trigger" on a stock, or sector, given that in many funds there is a bit of a bureaucracy involved and "trading by committee" philosophy.

As a result, what you feel has already been fully discounted and is now the actual real value of the stock, isn't necessarily so. Right or Wrong, the institutions aren't able to react as quickly as you, or most TRADERS.

As Victor Sperandeo used to say, "Observe What Is Happening . . . and Assume It Will Continue."

I can't tell you how much VALUE is in that one simple motto.

The other is by a former employer of mine, Paul Tudor Jones . . . "The hard trade ( the one where you are terrified to pick up the phone and call your order in ) is the WINNING trade."

Good info, thanks. Probably explains occasional moves in a stock that seem out of sync....like they would have made sense earlier but now right now. I suppose the quick reactions to news are due more to individual traders who don't have to check with anyone before acting......correct?