David vs Goliath. How small traders can Benefit from the Big Players

This article written by Gernot Daum was originally published in the April 2014 issue of Traders' Magazine.

• Gernot Daum, who is a trained computer scientist, has been a swing trader for 14 years, also focusing in recent years on the intraday trading of futures and stocks. 

What does a trader need to complete his trades in a disciplined way? Confi dence! And how can he get that? By knowing what he is doing and by completely understanding the situation in which he happens to be trading and by executing the very trades that match this understanding. Read here how a retail investor can mentally adjust to the “trading game”, in which he is pitted as a David against the major investor Goliaths. What are the strengths and weaknesses of the Goliaths and what are those of trader David? What is his slingshot and how can he use it best?

Amateurs and Professionals 

The situation in the trading arena is as follows (and some traders – especially neophytes – are not quite aware of it): Alongside a small number of major investors (equity funds, pension funds, and so on) that can safely be called professionals, there is a large number of so-called retail investors. Of these, most have not progressed beyond the “amateur” status yet. And unlike in sports where  professionals and amateurs compete against each other in separate leagues, amateur traders are, of necessity, pitted against the professionals from the very beginning. 

Major investors have a number of advantages: 

• Well-trained staff: Portfolio managers can be expected to have received the best possible training and to have plenty of work experience.

 • Technology: The latest software, good analysts to use it properly, fast computers, high-speed lines. 

• Sufficient capacity to conduct fundamental analyses. While good fundamental analyses comes at high cost, large investors can afford to meet them. 

• Good contacts: The large investors’ money managers have contacts in all directions of the financial sector, which gives them sources of information that retail investors can only dream of. 

• Size: They can move the market.

•  Download Resource