Amateurs and Human Behavior

Brandon Wendell
Instructor, CMT

While teaching a Professional Futures Course last week in Online Trading Academy’s new San Diego center, the students were amazed that I was able to easily pick out turning points in the markets with a high degree of accuracy. I explained to them that all I had to do was to utilize my training from Online Trading Academy, the same training they were receiving and that nearly anyone could do the same.

When we trade, we need to think like the professionals, not like the amateur investors who routinely make bad decisions that lead to their losing money in the markets. Amateurs will usually chase price and tend to buy when they see new highs or panic sell after prices have dropped. This is ridiculous and no one can make money trading that way.

You wouldn’t walk into a car dealership and ask them to double the price before you buy, so why should you buy stock after prices have risen? We need to buy stock like we buy other things in our lives, we buy on sale.

Looking at the chart of the SPY from last Thursday, you can see exactly where the amateurs chased the new highs. Once they were in, the professionals pushed prices lower to trigger their stops. This process was repeated over and over during the day.

bwendell 20140304 - spy 5 min

When we include volume in the picture, you can see exactly when the amateurs jumped in.

bwendell 20140304 - spy 5 min volume

It becomes more obvious in the following charts on a one minute timeframe.  The amateurs kept chasing and then had stops run by the institutions.  They were being way too obvious to the trained eye.

bwendell 20140304 - spy 1 min 1

bwendell 20140304 - spy 1 min 2

This occurs every day and also on all stocks and other financial markets. So how do you avoid being caught with the amateurs? You need to trade like the professionals and the institutions. To learn how to do that, come visit your local Online Trading Academy and be trained in our Core Strategy for trading the markets. Trading like the professionals will increase your chances for success!

This newsletter is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results. Reprints allowed for private reading only, for all else, please obtain permission.