Why Institutional Traders Make Money and You Don't

Summary

This video delves into the stark differences between retail and institutional traders in the financial markets. Retail traders often rely on superficial advice and ego-driven tactics, leading to repeated mistakes. In contrast, institutional traders employ a strategic approach using 'feeler positions' to better engage with the market, enhancing their decision-making capabilities. By starting with small positions, they refine their market sensitivity, allowing for more informed larger trades. The discussion emphasizes that trading success lies not in being right but in effective risk management and understanding market trends, urging traders to focus on strategy over ego.

Takeaways

• 😀 Retail traders often learn from non-professional sources, leading to repeated mistakes.
• 😀 Institutional traders use a strategy called a 'starting position' or 'feeler position' to engage with the market.
• 😀 Trading should focus on making money rather than being right, as even the best traders are not correct all the time.
• 😀 Ego-driven trading can lead to disaster and blown accounts.
• 😀 Retail traders typically enter trades with their entire position size, while institutional traders often start small.
• 😀 A 'feeler position' sharpens a trader's senses and intuition, allowing for better market engagement.
• 😀 The 'feeler position' is about gauging the market rather than making immediate profits.
• 😀 Having 'skin in the game' increases awareness and intuition regarding market movements.
• 😀 Professional traders build their positions incrementally instead of making large, single entries.
• 😀 Proper risk management is essential when using a feeler position to ensure losses are controlled.

Q & A

What is the primary difference between retail traders and institutional traders in terms of their trading approach?

Retail traders often learn from other retail traders and rely on non-professional sources, which can lead to repetitive mistakes. In contrast, institutional traders utilize strategies like starting positions to enhance their market intuition.

What is a 'starting position' or 'feeler position' in trading?

A starting position, or feeler position, is a small trade that traders take to engage with the market without a significant risk. It's designed to sharpen their senses and improve market perception.

Why do many retail traders fail to succeed in trading?

Many retail traders fail because they focus on being right rather than making money. They often enter trades with high stakes and tight stop losses, which can lead to emotional decision-making and account blowouts.

How do institutional traders manage risk when starting a position?

Institutional traders manage risk by starting with a small position size that allows them to gauge the market without significant exposure. They assess market conditions before deciding to scale into larger positions.

What is the psychological benefit of having a feeler position in trading?

Having a feeler position helps traders feel more connected to the market, sharpening their intuition and allowing them to better identify the right moments to make larger trades.

Why is it important for traders to avoid being emotionally attached to their trades?

Emotional attachment can lead to poor decision-making and the desire to be right, which distracts from the primary goal of making profits and managing risk effectively.

What do 'sniper entries' refer to in trading, and why are they considered problematic?

'Sniper entries' refer to the concept of perfectly timing market entries. This approach is problematic because it encourages traders to focus on precision rather than sound risk management and market analysis.

What is meant by 'having skin in the game' in trading?

Having skin in the game means having real money invested in trades, which increases a trader's awareness and emotional involvement, as opposed to trading with a demo account where the stakes are lower.

What is a common mistake retail traders make when entering trades?

A common mistake is entering a trade with their entire position size at once and setting a tight stop loss, which can lead to significant losses without allowing room for market fluctuations.

How can traders identify the right moment to increase their position size?

Traders can identify the right moment to increase their position size by closely observing market movements and trends after starting with a feeler position, allowing them to make informed decisions.