Definition of odd-lot theory

historical theory that the odd lot investor-the small personal investor who trades in less than 100-share quantities-is usually guilty of bad timing and that profits can be made by acting contrary to odd-lot trading patterns. Heavy odd-lot buying in a rising market is interpreted by proponents of this theory as a sign of technical weakness and the signal of a market reversal. Conversely, an increase of oddlot selling in a declining market is seen as a sign of technical strength and a signal to buy. In fact, analyses of odd-lot trading over the years fail to bear out the theory with any real degree of consistency, and it has fallen into disfavor in recent years. It is also a fact that odd-lot customers generally, who tend to buy market leaders, have fared rather well in the upward market that has prevailed over the last fifty years or so.