Here’s a cartoon view of traders and investors, and who does best in which type of market.
That rare breed of trader that seems to manage to consistently buy low and sell high.
Timing is great. Seems to have an uncanny knack for calling the markets before they move and has the discipline to follow their hunches and strategies.
Do they really exist? Don’t believe everything you read on the internet
2. The bots and the professionals
Buys low and sells high perhaps a bit more than 50% of the time — so makes gains over time.
Runs a clear strategy that is back-tested and disciplined.
Unemotional and sticks to the strategy — makes gains on average over time.
2. Retail traders
Amateurs, most day traders and retail investors. We seem to have an uncanny knack of buying high and selling low too often.
Get’s it right less than 50% of the time.
Prone to emotional hype and fear. Typically over-trades and generally loses over time.
Holds onto the position through the highs and the lows. Holds through the bull markets and the bear markets.
A long-term investor. Investment is a ‘fire and forget’ activity.
Focuses on the long-term fundamentals, and gaining a good return over the longer term.
Has a stronger sense for the bull and bear markets than the Hodler.
Holds investments with good long-term prospects in the bull markets.
Reduces investment or sits out in the bear markets.
Timing is unlikely to be perfect, tending to miss exiting at the top of the bull market and entering at the end of the bear market.
Holds long-term positions across a large basket of assets or currencies.
Pays less attention to the fundamentals (usually) than the Hodler and focuses on diversification of risk and linking with overall market returns.
Stays invested through the bull and bear markets.
Who does best in which market?
Numbers in cells represent the order of who does best. Colours represent profits (green), losses (red), and those that breakeven (yellow).
Few, if any, can be yoda.
Which are you?