Featured Article

The Tale of Two Emotions

Sam Seiden
Online Trading Academy, Chief Education, Products, and Services Officer

Think about it…

You walk into your favorite store to buy your favorite item. It may be ice cream, new shoes, your dream car, the latest gadget at the Apple store, your favorite drink at Starbucks, a perfectly ripe Avocado or Watermelon, or whatever you desire. As soon as you enter the store, to your surprise, there is a sign that reads: “Today only, your favorite item is on sale for half price, and there are only 3 left, and they are in the back of the store!” How would you feel after reading that? What would you do next? You are probably going to do two things, smile and run! How many are you going to buy when you get to the back of the store? All three of course unless it is the dream car but at half price, who knows… After you leave the store, the first thing you are likely to do is call everyone you know and tell them about the deal you just got because you are still so excited.

Now think about this…

You hear about a hot stock from your smart friend who dabbles in the markets. You then call your broker and ask about the stock because you want to buy it. He mentions that the stock recently had some bad news. He further follows that up by telling you that the stock price has been declining for a few days and is trending lower. You start to get a unpleasant feeling about buying this stock and then, the broker pulls up a chart and shows you a picture of what he just described. What you see is actually worse because the decline in price is getting steeper, showing big ugly red candles that are getting bigger each day. To the left, you see that price is nearing a prior low where it rallied from before, but he tells you that was in the past, the news is bad and getting worse. He then mentions that they are reporting earnings the next day. You tell him thanks for the information, but you are not interested in buying now because of the reasons he just mentioned. The next day, the company reports earnings that miss expectations and the stock’s price falls more. Do you buy the stock? Or, do you focus on the bad earnings and let that confirm your decision to not buy the stock? The vast majority of people will do the later of the two and not buy the stock. Furthermore, they think those who would buy the stock are crazy.

Finally, understand this…

Think of what the charts would look like with both of the examples above, your favorite item on sale and the stock falling on bad news. Wouldn’t the charts look EXACTLY the same? Of course they would. However, because of how people are taught to trade and invest, they take the opposite action in the two examples. When prices are down for your favorite item, you are very excited to buy. However, when prices are down in a market because of bad news or whatever, you are trained to not buy, but worse yet, sell!

At Online Trading Academy, what makes us different and our approach to trading and investing unique is that we realize that there is absolutely no difference between how you properly buy and sell things in every other part of your life and how you properly buy and sell in the trading and investing markets. When you approach the markets from this realistic perspective, market timing is not that difficult and low risk, high reward, and high probability opportunities can become achievable and consistent. Ironically, this simple approach is remarkably different from conventional technical and fundamental analysis. It is really an opposite approach from those traditional ways of thinking markets and trading, yet these two forms of analysis are what most people use because that is what all the books write about and schools teach. This is the reason most traders fail and most investors never achieve their financial goals.

Pro Pick Trade: 10/7/13 – USDJPY

The Tail of Two Emotions image001

Let’s take a look at a recent Pro Picks trade to see this reality in action. First, Pro Picks is our Stock, Futures, Options, and Forex picking service where we give you the exact entry, stop, and for day, swing, and position trades. While we give you the exact entry, stop, and target prices, these picks are all delivered in a very educational way as the goal is to teach you how to do this on your own. The pick above is in the USDJPY, a popular Forex market. Price was declining; a strong move down was underway. However, price was nearing what we would call a “fresh demand level.” Given the distance from the demand level below to the profit target above, this told us we had a low risk, high reward (profit margin), and high probability buying opportunity. You now have two choices as price is falling, prior to entry… You can focus on the bad news, ugly red candles, and down trend, and that will lead you to either do nothing or sell. Or, you can focus on the reality of how you make money buying and selling anything and realize that you just walked into your favorite store and your favorite item is on sale that day only but this time, it is a 70% off sale! I bet you would run extremely fast and buy as much as possible. That is how a consistently profitable trader thinks which happens to be exactly how a smart buyer of anything thinks.

The Tail of Two Emotions image003

The USDJPY reached the demand level for the Pro Pick buying opportunity (circled area), turned higher and rallied to reach the profit target at supply for a Pro Pick gain of $537.00. Another way to say this: Pro Picks bought at “wholesale” prices (demand) from people who are trained and conditioned to sell at wholesale prices. Then, Pro Picks sold at “retail” (supply) prices to people who are trained and conditioned to buy at retail prices.

Over the past couple years, I have received more and more emails from some of our readers suggesting that they are really understanding this concept. They understand something that is not that difficult to grasp if your focus is in the proper place. However, the fact that most people around the world think in opposite terms when it comes to how you properly buy and sell things in every other part of your life and how you properly buy and sell in markets is truly astounding. Everyone has it wrong. I suppose this is a wonderful opportunity for those who think through this simple concept the right way…

Hope this was helpful and have a great day.

Sam Seiden – sseiden@tradingacademy.com


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.