I have been involved with the markets for almost 20 years. I started on the institution side of the business but have spent much more time trading and building financial education content for the retail trader and investor world. While I truly feel I am speaking the truth when it comes to supply and demand, how the markets really work and how money is really made and lost in markets, I am and likely will always be very outnumbered when it comes to popular belief regarding strategies; and that is perfectly fine with me. It really comes down to two schools of thought. Should your trading or investing strategy focus on market timing, which means identifying market turning points in advance and then taking action at those turning points, like I am always suggesting? Or, should you focus on trend trading and try and capture part of the meat of the move which is popular belief.
When most people hear my ideas for the first time, the initial words I often hear are: “Seems high risk,” “Is this contrarian,” “Picking tops and bottoms can’t be done,” and so on… Most people focus on “trend” trading and staying out of market turns. I understand this because that is what the trading books tell people to do. It’s also what Wall Street professionals tell the public is best for them. Two problems with that though… First, people who read trading books and employ conventional technical analysis and such tend not to be very profitable. Second, what Wall Street suggests is typically better for them, not for you. Still though, the vast majority want to focus on the middle, the trend, and not the turning points and I get that. In other words, most people are far more comfortable buying after price has risen and selling after price has fallen.
A while back a friend sent me an email with a quote from someone who is regarded as one of the best traders in our life time, Paul Tudor Jones. If you don’t know him, look him up. The email said “Sam, you’re going to love this quote,” my friend was correct. When I read this quote I could not believe it. It was like the words in the quote were coming right out of my mouth, only they were not from me. They were from someone who is worth over $3,000,000,000.00 (yes, that’s 3 billion according to reports). The quote said exactly this:
“I believe the very best money is made at the market turns. Everyone says you get killed trying to pick tops and bottoms and you make all your money by playing the trend in the middle. Well, for twelve years I have been missing the meat in the middle but I have made a lot of money at tops and bottoms.” – Paul Tudor Jones (source: Business Insider)
I could not agree more with Mr. Jones. Being in the trend is great, but I get in at the turn before the trend is under way. I honestly can’t figure out how you would even enter into a trend after it is well underway. To me, that is VERY high risk and low reward trading. Where do you enter, how in the world do you properly manage risk and reward when buying after a rally in price? Let me share a trade in the NASDAQ from last week to help illustrate my point. The yellow box represents where banks were selling the NASDAQ and the circled area is where I entered the trade and sold short.
Each entry, as you can see, is getting in at the turn just like Mr. Jones is suggesting. The reason why my ideas are the opposite of the masses is because I didn’t learn to trade like the masses. I learned to trade from the Wall Street side of the business, on a trading floor, dealing with some of the largest order flow in the market. From that experience, there is only one way to do it. You buy where the significant buy orders are and sell where the significant sell orders are (supply and demand), again, just like Mr. Jones is suggesting. The masses learn to trade from trading books, seminars, the internet and so on. Also, keep in mind that I am not just talking about short term trading for income. I am equally talking about long term trading for passive income and wealth.
Believe me, I am not trying to twist your arm or beat up trading books. As someone involved in the somewhat unregulated world of financial education, I feel it’s my responsibility to share these ideas and different views with you.
Hope this was helpful, have a great day.
Sam Seiden – firstname.lastname@example.org