The rules of the game in the financial market often expose the truest side of human nature.
As a female analyst who has been struggling in the crypto market for many years, I have seen too many retail friends enter the market with confidence, only to leave in disappointment. Data shows that retail investors with account values below 100,000 yuan suffer the most losses, averaging 20.53%, while institutional investors can achieve a return rate of 11%.
What market laws are hidden behind this? Today, I want to share my observations with everyone.
Many people think trading is a game against the market, but in reality, the essence of trading is a confrontation with oneself. When we face price fluctuations, the greed and fear that arise within often become the biggest obstacles to decision-making.
01 Common psychological traps for retail investors
Among the many retail investors I have encountered, I found that they generally have several fatal psychological traps:
Frequent trading is the first major enemy. Trading too often in a short period or trading frequently with heavy positions can greatly increase transaction costs. Studies have found that 66% of retail investor losses are attributed to commissions and stamp duties, while stock selection errors and timing errors only account for 34%.
Chasing highs and selling lows is another common problem. The herd effect is contagious, and following the actions of the masses can easily trap investors in this pattern. I have seen too many people blindly follow the trend during market enthusiasm and hastily sell during market panic, resulting in always buying high and selling low.
Holding on to losses without selling is also typical behavior of retail investors. According to the regret theory in behavioral finance, investors often have a loss aversion mentality, preferring to hold onto positions that continue to lose money rather than admitting mistakes and cutting losses in a timely manner.
02 The cruel reality of information asymmetry
In addition to psychological factors, information asymmetry is also a significant reason why retail investors are at a disadvantage.
Institutional investors have more research resources and data analysis tools, while retail investors often can only rely on public information, making it difficult to make timely and accurate investment decisions. When good news reaches the ears of ordinary investors, it is often outdated information already utilized by institutions.
What is even more concerning is that the legal costs of insider trading and stock price manipulation are low, making retail investors with insufficient information the 'suckers' in the game. For example, the high送转行情 often creates stocks that double in price, but the 'hidden' profit opportunities usually belong to institutions that have insider information.
03 The problem of market structure itself
The A-share market has not yet formed an atmosphere dominated by value investment and rational investment concepts, lacking a long-term investment overall environment. The Shanghai Composite Index had a 'zero increase' for 13 years, and in a market with a 'zero increase' and continuous bear trends, retail investors in a weak position inevitably suffer severe losses.
The market expansion phase is also related to retail investor losses. When the A-share market started in 1991, its circulating market value was only 10 billion yuan, and it only reached 80 trillion yuan at 6124 points. Later, due to the full circulation of market value and the listing of a large number of new stocks, the market value expanded to several hundred trillion yuan. A drop of just 15% was enough to wipe out the previous 80 trillion yuan in profits.
04 Changing the way of thinking is key
So, how can retail investors avoid the fate of being 'cut like leeks'?
I believe that the first step is to adjust one's trading mindset. Buffett has a famous saying: 'Be fearful when others are greedy, and be greedy when others are fearful.' This simple statement reveals the importance of contrarian thinking.
We need to clarify our trading goals, master trading skills, and cultivate a habit of 'executing without hesitation.' Establishing our own trading system is key to success, but more importantly, it is to strictly implement this system.
Reducing the frequency of watching the market is also an effective method. Whether in a bull market or a bear market, those investors who watch the market every day tend to suffer the most losses. My personal advice is not to be led by short-term stock price movements; appropriately reducing the frequency of watching the market may give you a clearer mindset.
05 My view on the future of the market
With the development of AI technology, ordinary investors may gain a fairer opportunity. AI can provide professional financial services to ordinary investors by reducing research costs, optimizing service processes, and precisely matching needs.
Technology is no longer limited to the position of 'efficiency tools' but has become the infrastructure for reconstructing industry ecosystems. Blockchain technology can make up for the shortcomings of artificial intelligence in data security and data factors, providing reliable guarantees for the application of artificial intelligence in various scenarios.
But this does not mean we can rely entirely on technology. Ultimately, decisions should depend on oneself; only by continuously improving one’s cognitive level can one survive long-term in this market.
Final words
In my years of market observation, I have found that those retail investors who can continue to profit have a common trait: they are continuously learning and are willing to admit their mistakes.
The financial market is always changing, and there is no fixed strategy that can guarantee perpetual profits. True investment experts do not avoid making mistakes but correct them promptly, preventing small mistakes from evolving into major disasters.
I hope my sharing can bring you some inspiration. Remember: surviving in this market is the most important thing. Follow Ake to understand more first-hand information and cryptocurrency knowledge, become your guide in the crypto world, and learning is your greatest wealth!#加密市场观察 #巨鲸动向 $ETH
