To Profit in the Markets, Think Like a Wall Street Trader

Originally published on Equities.com, August 29, 2016.

Everyone knows that the stock market moves up and down, and sometimes not at all. One of the things that most people never consider though is that there are only two actions anyone can take in the market: Buying and selling. The other thing we want to consider is who is on the other side of our action, because for every buyer there has to be a seller.

Consider the actions of buying and selling and how we make every purchase in our lives. As consumers, we are trained from a very young age to buy things when they are on sale; essentially buy at wholesale prices. Conversely in life, when we want to sell things, we sell them once they have gone up in value to capture some profit and sell at retail prices.

If we know this to be true in our daily lives, why are the financial markets any different? From a very young age, we are trained and conditioned to only buy strong stocks, in uptrends with good earnings and a healthy balance sheet; to add to that we are often times told to buy only when price is above a moving average and the indicators are pointing up.

The question we have to ask is when those conditions are present: Where is the price of the stock?

When all of those conditions are present, the price of the stock is certainly not going to be at a wholesale level, but rather at a retail level. As investors and traders, we are trained and conditioned to buy at retail and sell at wholesale, exactly the opposite of how we are successful everywhere else in life.

After thinking about the actions of buying and selling, one of the things I always speak to Online Trading Academy students about is trying to consider who is on the other side of their trade. Another important factor to consider is that there are two distinct groups, the professional institutions (call them Wall Street), and retail traders or investors (call them Main Street).

While Main Street investors do well in up markets, they typically tend to lose or struggle in down and sideways markets. Wall Street has an ability to profit in any market condition and it is mostly due to their business model. One thing to consider is that a retail investor is always looking for a good buy. Whether they are looking for a good stock, ETF, mutual fund or bond they are always buying.

But what is Wall Street's main business model? Wall Street’s main business model is selling securities to Main Street. By selling stocks, ETF's, mutual funds, bonds, insurance and other products to Main Street Wall Street makes consistent profits in any market. I am in no way suggesting that retail investors stop buying stocks, but what I am suggesting is for retail investors to start to think and act like Wall Street because they are laughing all the way to the bank.

Originally published on Equities.com.

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