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Buy and Sell with the Smart Money

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

I live in Chicago but travel the world and the closer I am to Asia and Europe, the more it seems people love trading the Forex market. Something I’ve noticed is that traders in those parts of the world tend to try and make so many different strategies work in the Forex market. In spite of the many strategies, I meet very few who achieve the success they are in search of. They don’t realize the key factor in trading is being able to consistently identify two things: Where will price turn and where will price move to.

What Is Market Timing?

Market Timing is the ability to identify market turning points and market moves in advance with a very high degree of accuracy. In other words, the ability to identify where market prices are going to go, before they go there. The main reason you want to know how to time the market’s turning points in advance is to attain the lowest risk, highest reward and highest probability entry into a position in the market. Think about it, by entering as close to the turn in price as possible, you enjoy three key factors:

  1. Low Risk: Entering at or close to the turn in price means you are entering a position in the market very close to your protective stop (risk). This allows for maximum position size while not risking more than you are willing to lose. The further you enter the market away from the turn in price, the more you will have to reduce position size to keep risk low and in line.
  2. High Reward (profit zone): Similar to number one above, the closer your entry is to the turn in price, the greater your profit zone. The further you enter into the market from the turn in price, the more you reduce profit zone (reward).
  3. High Probability: Proper Market Timing means knowing where banks and financial institutions are buying and selling in a market, the smart money. When you are buying where the major buy orders are in a market, that means you are buying from someone who is selling where the major buy orders are in the market, and taking advantage of a very novice mistake. When you trade against a novice market mind, the odds of success are stacked in your favor. You can either buy and sell with the smart money or with novice market speculators, there is no middle ground.

Free Trading WorkshopSo, how do we time the market’s turning points in advance? It all begins and ends with understanding how to properly quantify real bank and financial institution supply and demand in any and all markets. Tweet: Market timing begins and ends with understanding how to identify institutional supply and demand. https://ctt.ec/7o7v4+ Once you can do that, you are able to identify where supply and demand is most out of balance and this is where price turns (where banks buy and sell). Once price changes direction, where will it move to? Price moves to and from the price levels with significant buy (demand) and sell (supply) orders in a market. So, again, once you know how to quantify and identify real supply and demand in a market, you can time the markets turning points in advance with a very high degree of accuracy.

While this article focuses on the Forex market, everything I am suggesting here applies to any and all markets. To better understand how to do this, let’s take a look at a recent trading opportunity that was identified in our live online trading program, the Extended Learning Track (XLT). The XLT is a two – hour live market income and wealth trading session with our students three to four times a week.

Before the session began, we identified an area of Demand in the AUDNZD (Australian Dollar/New Zealand Dollar) and setup the entire trade in advance, like we always do. We apply our rule based analysis to identify the trade and our rule based execution to take advantage of the opportunity.

The demand zone (buy zone) was an area of Bank Demand for a few reasons. First, notice the strong initial rally in price from the demand level. Also, notice that price rallies a significant distance before beginning to decline back to the Demand level. These two factors tell us that Demand greatly exceeds Supply at this level, banks are aggressive buyers. The fact that price rallies a significant distance from that level before returning back to the level clearly shows us what our initial profit zone is. These are two of a few “Odds Enhancers” we cover in the live trading session. They help us quantify bank/dealer desk Supply and Demand in a market, which is the key to knowing where the significant buy and sell orders.

The plan with this trade was to buy if and when price declined back to that area of Demand. This trade was high probability, but how do we know that? Well, being very confident that there is significant Demand at that level tells us that we will be buying from a seller who is selling after a decline in price and at a price level where Demand exceeds Supply, the most novice move a trader can take. Furthermore, these are the two most novice decisions a buyer and seller of anything can make. These are “retail” sellers selling where “banks and institutions” (the smart money traders) are buying. The retail sellers are selling with the odds stacked against them which means they are stacked in the buyer’s favor, at the demand level.

XLT – Live Income and Wealth Trading and Analysis

Market timing is allows you to buy with banks and institutions instead of against them.

As you can see, what happens next is price declines down to our pre-determined Demand level where Banks and XLT members are able to buy from sellers who are selling at “wholesale” (Demand) prices. So, changing our mindset to think like a bank leads to acting like a bank; we can then buy where banks are buying which is opposite of what most traders and investors do.

Notice that price declined (down trend) to our demand level where we were willing buyers. Every trading book would say we are breaking the most important rules in trading when buying under those circumstances. Well, how many people do you know who read trading books or try and learn how to trade on the internet that make a consistent low risk living year after year trading? I would be surprised if you knew one, so be careful with what you read. The trading book version is conventional thinking which most often has you buying high and selling low.

Don’t take my word for it, however, read a trading book and ask yourself how that book is teaching you to enter positions in markets. Is the book version entry and exit into a market the same as how you make money buying and selling anything in life? If there is any difference, good luck trying to profit from the information. Like anything in life, there is the book version way of learning to do something and the real-world way of proper skill building. All we are doing at Online Trading Academy is simply sharing real-world trading and investing with you. We are not trying to reinvent the wheel. How you make money buying and selling anything in life is exactly how you make money buying and selling in markets. I learned reality based trading during my time on the trading floor of the Chicago Mercantile Exchange. Trust me, no one on that trading floor was any smarter than you.

Shortly after reaching our demand level, offering a low risk buying opportunity, price rallied for more than a 4:1 gain for those who took the income trade. This is market timing, and while it does not guarantee that each trade will be a profitable trade, it does offer the lowest risk entry, highest reward with that entry, and highest probability of success. How well your winning percentage is with the strategy depends on your ability to identify key bank and institution supply and demand levels which means following our simple strategy rules.

So often I hear people say: “I wish I knew where the Banks and Institutions were buying and selling”. Every time I hear this I say: “You can see where the smart money is buying and selling, if you know what to look for on a price chart”. Banks leave crystal clear foot prints for those who know how to identify them. It all comes down to supply and demand, just like buying and selling anything else in life.

Hope this was helpful, have a great day.

Sam Seiden – sseiden@tradingacademy.com

Disclaimer
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.