HedgeFundLIVE.com — Most traders are like your average sports fans. Great traders are like your die hard fans. Average fans watch games just for the fun of it. They might even be passionate about it, but not obsessed enough to know all the ins and outs of the game. Die hard fans, and sports enthusiasts in general, will not only love the game, but know the stats of the players and teams.
Similarly, most traders, and I say “most” because most traders are actually unsuccessful, will trade just for the thrill of it. They trade because they may “potentially” reap great rewards. Now, great traders, on the other hand, will really study the art. They will know the technicals, not merely from experience, but by examining historical data.
Trading is a game of odds. Stack the odds in your favour and you can’t do that badly. But there are too many traders who dodge the odds; those are the folks who fall under the first category of “most traders” who will swing around for the pure thrill of making money. After all, it is really when something defies the odds that creates true excitement. It is the same reason why many sports fans will root for the underdog. It is why a trader might short a name like RAX. Wouldn’t it so great to be that guy that caught the big down move in a stock like that? Don’t get me wrong- there may be valid fundamental reasons why an investor might choose to short RAX right now.
But from a quant perspective, I see little reason to short stocks like that- ones that have historically seen only small pullbacks. Yes, all stocks experience pullbacks, and perhaps a trader is setting out to make some money off the down move. But is it really worth it to short a name whose pullback is historically fairly small and lasts only for a few trading days at best?
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