Differences Between Professional Traders & Retail Traders

Lists of Differences and Viewpoints

Many Retail Traders assume, that they are learning how to trade from a Professional Trader and that they are trading like a Professional Trader. This can pose inherent problems for the Retail Trader who is actually simply mimicking another Retail Trader. The Securities and Exchange Commission SEC recently fined companies whose representatives claimed they were “Professional Traders” when they were not, to find out more about this go to their website.

Here are some of the differences between Professional Traders and Retail Traders:

1. Income and Profits

Professional Traders earn in the 6-7 digit figure incomes.

Most Retail Traders lose money year over year. A few make minimal net profits but do not pay themselves a wage for doing so.

2. Stock Analysis

Professional Traders who are proprietary desk or Buy Side Institution floor traders do not select stocks to trade. They are given a list of stocks to buy or sell, or sell short. This list is developed starting with Fundamental and Quantitative Analysis, followed by a screening of Risk Assessment and Risk Analysis.

The Portfolio Manager makes the final decisions before the list is handed over to a Professional Trader based on their expertise in specific trading instruments and stocks, as well as their talent for executing these trades to the benefit of the institution’s goals.

Retail Traders must do all 3 Analysis for themselves. They must first be able to quickly find stocks to trade using Technical Analysis that fit their personal Trading Parameters, Risk Tolerance, Trading Style, and personal Goals. Then the Retail Trader must determine risk factors based on the requirements and parameters to screen down to a few stocks. Finally the Retail Trader trades the stock using a complete Trading Process.

Unfortunately most Retail Traders skip performing these analysis and just use recommended stocks, stocks in the news or chat rooms, or StockTwits setting themselves up for predatory trading systems to take advantage of their lack of skill. Risk Analysis is rarely done by the Retail Trader who often chooses the highest risk stock pick to trade, ending with a huge loss.

3. Trading Styles

Professional Traders have learned more than one Trading Style, and have set up technical systems which are a group of Indicators, Chart Layouts, and Parameters for each Trading Style. This makes it easy and fast for the Professional to switch styles or technical indicators to fit the current Market Condition. Professionals often develop their own Proprietary Indicators and Period Settings that they do not share with anyone else. Unfortunately most Retail Traders use only a couple of Public Domain Indicators that millions of Traders use, setting themselves up not only for predatory systems used by High Frequency Traders to find Cluster Orders and Retail Trading Systems Orders to move price ahead of Retail Small Lot Orders. Retail Traders unlike Professional Traders, do not like Proprietary Indicators. Professionals know that having for example Proprietary Indicators and Trading Styles ensures that no predatory trading system can track their activity. They are trading in a manner that best suits their style and goals instead of following the crowd mentality.

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Trade Wisely,

Martha Stokes CMT

Chartered Market Technician
Instructor & Developer of TechniTrader Stock & Option Courses

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