The difference between the average retail investor and the fool who rushes in at the end because everybody else is there.
The contrast lies between the typical retail investor and the imprudent individual who enters the market late, propelled by the momentum of the crowd. The latter's entry often signals the market's peak, not the involvement of average investors who generally follow market trends. We categorize market participants into four key groups:
1. Strategic, long-term investors with substantial capital.
2. Professional traders focused on short-term gains.
3. Day traders aiming to minimize risk.
4. Program traders seeking to profit from small price differences.
In many robust upward-trending markets, it's the short-term professional traders who consistently attempt to sell at new highs. This group has maintained a bearish stance since 2009, frequently missing out on the ascent to new highs and persisting in their attempts to sell at every subsequent high. They operate under the mistaken belief that their professional status will ensure their predictions are correct, deeming the average investor as less informed. However, it is the average investor who accurately perceives the trend's direction, aligns with it, whereas the short-term "professional" strives to outperform the market.
Day traders and program traders, who believe they are mitigating risks or capitalizing on minute price variances, often find themselves trapped by sudden liquidity shortages, leaving them in untenable positions.
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