You probably have heard this saying before It is lonely at the top. If you find yourself in this position, then you are probably at the top of your own niche. Our society is made of hierarchies. Most countries are headed by Presidents, and Prime Ministers. It is them who make decisions that would affect the nations fate and success. Corporations follow the lead of their Chairmans and Chief Executive Officers. Below these leaders you would have the Vice Presidents, Deputies Vice Presidents, Senior Managers, etc. A hierarchy essentially looks like a pyramid. Whoever sits at the top of the pyramid normally makes the most money as well as has the most influence in that society. This pyramid can also be applied to nature where they call this a food chain. Predators are normally at the top of the food chain while small defenseless herbivores are at the bottom of the food chain. The higher you are in the pyramid the fewer predators, (that may have you for lunch) are out there.

The same can be said in the Investing World. How do you, as a retail investor, rank in this food chain? Lets try to understand how the Investing Hierarchy looks like.

Stock prices are normally moved by information (good or bad). Whoever can access and react fastest to these information would be placed right at the top of the Investing Food Chain.

Capitalist and Entrepreneurs who manage to get their companies public listed would be the first to know of critical information that would affect their stock prices. One level below these individuals is high worth individuals who would provide initial capital to ambitious Entrepreneurs. Venture Capitalists, who provide significant funding to take the corporation to higher levels, are next on the hierarchy. One step below the venture capitalists is the Investment Bankers who provide financing, underwriting, and distribution to take a corporation public. These individuals are the top predators in the world on investing. They would have access to information that is not yet made known to the investing public.

Do retail investors rank below these groups of people? Definitely NOT!

Above the retail investors, we would have Financial Professionals (Mutual Funds, Hedge Funds, etc) who would analyze stocks for their clients. Brokers and Floor Traders are also ranked higher than retail investors in the Investing Food Chain.

And finally, the retail investors are right at the bottom of the food chain. No wonder more than 90% of retail investors end up losing money. Ask yourself, how many times have you bought stocks due to good news in the news or newspaper only to see it go down as soon as you enter into position? Most of us have been there before. By the time, this information reaches the public; it is normally too late to buy. The big guns are already in position weeks ahead and would be ready to take profit when stock prices starts to move up dramatically.

Fortunately, through stock charting, retail investors have a chance to interpret and to understand what the big guns are doing in the stock. Heaving buying and selling by the elite group leaves footprint and trails on the stock market. It is up to us, as retail investors, to understand what the stock charts are trying to tell us. Understanding charts can move us up in the Investing Hierarchy.

However, a word of caution, technical analysis is an art and can be very subjective. It should only be used as a roadmap or guideline to enter and exit a position.

Copyright 2006 CashFlow Avenue