By Sam Seiden, Online Trading Academy Instructor
Before I dive into this topic, let me start by saying that money does not buy happiness and yes, the best things in life are free. I am, however, old enough to realize that if I want to live in a nice neighborhood, have access to really good healthcare, travel and see the world, retire at some point, and provide some financial security for my family; I need money and buying power, and lots of it. To get right down to what is most important, it's all about having choices in life and unfortunately, we live in a world where money buys choices. I didn't create that, I am merely a participant like everyone else. Again, money certainly does not mean happiness, it does however help create a life where we have choices on healthcare, education, where we live, and most importantly, how much time during our life we can spend with those who are most important to us.
Figure 1
From the day we understand what the word money means to the day we die, we are responsible for the financial "pie" that consists of all the US Dollar based assets we own. While you may live in a country whose base currency is not the US Dollar, I will use this currency in my lesson today. On the example below, I list the obvious assets: Stocks, Bonds, Real Estate, Gold, Cash, and your Trading Account, but there are many more for some people. How pro-active are you in moving money from one slice of the pie to the other? Do you have a rule-based plan based on the objective laws of supply and demand that determines when you move funds from one slice of the pie to another? Have you ever even considered this topic at all? One thing I find amazing after all these years in trading and the trading education business is that I see so many people work so hard their whole life only to hand their hard-earned money over to someone to manage it for them who knows very little about attaining REAL risk-adjusted returns. The new retirement plan these days is to "go back to work." It does not have to be that way! You can take some simple steps to learn to manage your financial pie yourself.
Figure 2
We take the needed pro-active steps in the Extended Learning Track (XLT) class. Below are two markets in our pie, the S&P and the 10 Year Note which represent some of the largest stock and bond markets on the planet. In March of this year, we noticed that the S&P was nearing a major demand level on the larger time frame chart. In the XLT MIT and Futures classes, we determined that the S&P was likely to make a large move to the up-side from that level. At the same time, the 10 year note was nearing an objective supply level. This told us that the 10 year note was likely to make a substantial move to the downside. Our pro-active portfolio action to take based on that objective information was to reduce or eliminate our bond holdings and move funds into the stock market. This turned out to be the correct action to take in our financial pie which was based on simple objective supply and demand price action analysis that anyone can do once you have the tools.
Figure 3
Many of our XLT members took this opportunity to increase the value of their pie. Below is an email and statement from one of our XLT members, Shawn.
Hi Sam,
Most of the positions were entered during the week of 3/9 - 3/13.
This was one of my IRA accounts which was sitting all in cash until the end of Feb. after I started putting some of the XLT pieces together. I have to admit, at the time I did not fully understand what the hell was happening and was pretty sure the market was going to continue down to the 450 level [S&P] and there was no way it was going to bounce off that tiny little 650 level from 14 years ago???
Shawn C.
Figure 4
Notice, Shawn didn't think the market would turn at a demand level from 14 years ago but it did. The key is to take the thinking out of your analysis and focus on the reality of what the market is telling you. I have circled the % gains Shawn made as of a few weeks ago which are substantial. While there is much more information on this topic on how we pro-actively apply our simple supply and demand analysis to our financial pie, the focus of today's piece was to make you aware of something so important to your financial well-being and the well-being of those around you and to also share with you the fact that you can do this, period. For more information on quantifying supply and demand, please see some of my prior articles found on the Online Trading Academy website. Always remember, those who don't know how to manage their ever important financial pie simply provide wealth for those who do. It is how the world works.
Note: For those who have sent me an email and have not received a response, we have had months of issues with my email but as of last week, this issue has been resolved. Sorry for the inconvenience if you have not received a response, your emails are always much appreciated.
Have a great day.
- Sam Seiden sseiden@tradingacademy.com
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