Leaders, followers and independents

Broadly, market participants are either leaders, followers or independent thinkers. Each group can be subdivided into good or bad.

A good leader will make the best returns. Their followers will ensure that their trades deliver accelerated returns and they will often avoid losing even on bad bets. Because they are competent, their followers will also win on average and so their position as leader is sustainable.

A bad leader will make similar amounts of money to a good leader for a while until their followers eventually realise that they are losing overall. This can take some time as initially bad calls may deliver returns for most followers in a similar way to how a pyramid scheme can be sustained for a while.

A good independent thinks and acts alone. They will make less than a similarly good leader as it will take longer on average for their investments to reach maturity. Initially, they can also underperform bad leaders and good and bad followers due to being less likely to benefit from momentum. However, they should come out ahead of these groups over the long-run.

A bad independent is most likely to be weeded out first as they do not benefit as much from momentum which helps both good and bad followers and leaders.

A good follower can do well, although not as well as their leader to whom they effectively pay a fee in the form of inferior entry and exit prices on average. They also benefit from momentum driven by other followers. Obviously, followers are dependent on their leader's continued superior performance and so are less sustainable than good independents.

A bad follower will often have early success which gives them a false sense of competence (due to momentum). Eventually, they should realise that their leader is bad once they have lost enough money.

These groups are fluid with individuals playing a variety of roles at different times and participants can progress to better categories through learning.

On top of momentum, luck heavily interferes with the correct assessment of good and bad players. This makes it hard to identify who is in each group including yourself, so a bad leader may be unaware that they are bad rather than being deliberately out to shaft people. Most are striving to be good independents or good leaders, the only sustainable roles for an individual in the longterm.

Leaders have the greatest impact on price moves. Their influence is inversely correlated to stock size and liquidity and also depends on the weight of money of their followers.