Why you should always do your own trading and investment research first

Some traders and investors simply take other peoples’ analysis or trades and just copy them without thinking twice. This is something that I generally advise against. Traders and investors should always do their own research and make their own trading decisions. Do not blindly copy someone else’s ideas without thinking twice.
Other peoples’ analysis should be used as a tool to help you make decisions. It shouldn’t make the decision for you. Here’s why.

What if the trader that you’re copying is wrong?

Trading and investing is not a science. No trade is “guaranteed” to be a success. That’s why trading is all about probability. If a trade has a 95% probability of success, there is still the possibility that this is the 5% failure case.
Every trader and investor makes mistakes, regardless of how experienced or successful he has been in the past. That’s why you should always double check someone else’s work and do your own homework. Perhaps you will catch a mistake that he made. Blindly copying someone else’s trades will result in you making the exact same mistakes as he’s making.
Another danger with copying someone else’s trades is that you might only catch 1 side of the trade. For example, famous hedge fund managers and investors often tell investors to “buy XYZ”. But they never tell investors when to sell that same position!
Knowing when to sell is just as important as knowing when to buy. Copying only the buy order is not useful if you can’t copy the sell order! Getting out of the position too early or too late can lead to a smaller profit or even a loss.

Conventional “wisdom” is often wrong. Always backtest conventional “wisdom”.

The market is full of dogma and “wisdom” that many investors and traders believe in. The financial media is no better because they simply reinforce these preconceived notions.
For example, the majority of traders and investors believe that rising interest rates are bearish for the stock market. It sounds logical and everyone says it, so they automatically¬†assume that this is true. It isn’t.
Historically, the stock market has gone up more often than it has gone down when interest rates went up (see analysis).
That’s why you should always do your own investment and trading research. Backtest conventionally accepted “wisdom” because most of this wisdom is wrong! This is why we share market studies here at Bull Markets. We backtest as many ideas as we can via quantitative studies, and so should you.

Doing your own research will improve your trading skills

Ultimately you want to be an independent trader and analyst. You cannot completely rely on someone else. What if that other trader stops trading? What if he stops sharing his research? You’d be in a lot of trouble.
Analysis and trading skills take time to practice. You cannot expect to be good at analyzing the markets with just a few weeks of training. It takes at least months and months of practice. Doing your own research and homework – even if someone else has already done the same thing – will train your ability to think and analyze the market’s independently. Practice doesn’t make perfect, but it definitely makes better.

Always do your own research before reading other peoples’ opinions

I always look at the markets with my own eyes before I read other peoples’ outlook and opinions on the markets. It’s not a good idea to read other peoples’ thoughts before forming your own market outlook.
Reading other peoples’ thoughts will give you a bias and cloud your thinking. For example, let’s assume that the majority of other investors and traders that you follow are bearish right now. Reading their thoughts will give you a bearish bias when looking at the markets.
I always form my own market opinion first. Then I compare my thoughts to other peoples’ thoughts.

  1. I only pay attention to the bullish/bearish factors that I missed in my own analysis.
  2. If there’s a bullish/bearish factor that the other trader mentioned and I disagree with, I need to know WHY my outlook is right. I need to find proof as to why I am sticking with my own outlook.
  3. I ignore people who agree with my outlook. I don’t need confirmation bias.

Remember, independent thinking is the key to successful trading. Other peoples’ analysis, thoughts, and market outlook should only be a feed to HELP your own trading. Your own trading and investment decisions should not rely on other people.

Leave a Comment