Often, I write articles about the importance of having or owning a competitive edge. It is amazing to me that people in general focus very little on this most important topic. Most traders read trading books and learn to buy and sell where everyone else who reads the books buys and sells which ensures you will not have an edge. With most things in life, trading for sure, there is a winner and a loser. The consistent winner has an edge over the loser that includes two things:
- Mental: Having a mental edge is a combination of proper reality based thinking (void of illusion), having extreme self control, and focus.
- Strategy: Having a strategic edge means owning a rule based strategy that ensures success over your opponent. Your trading and investing strategy must offer you the lowest risk, highest reward, and highest probability opportunity.
I started my career on the floor of the Chicago Mercantile Exchange facilitating institutional order flow. In other words, I started on the institution side of the business, not the retail side. So, I had the privilege of learning how the game of making and losing money really happens in trading. In this piece, I want to share with you one of the tricks that allow Online Trading Academy students to enjoy a trading edge that can’t be obtained by reading a trading book.
Supply / Demand Grid December 16th, 2014. Aussie Dollar (AUDUSD)
The Supply and Demand levels grid you see above is a service I and my team produce each day for our students. It offers three supply and demand levels on some of the biggest markets in the world. Above, one of the levels on the grid was a demand level in the Aussie Futures of .8110 – .8148. This is a level where our strategy told us there were unfilled buy orders meaning banks were willing buyers, strong demand. Make sure you understand that this demand level is NOT that pivot low labeled “A”. The demand level on the grid was to the left, not seen on the chart. “A” is the pivot low prior to price reaching the demand level on the grid. While “A” is in the demand zone, the grid was posted after “A” was in place already. Every trading book is going to draw a line from that pivot low “A” and extend it right, calling it “support.” So, that means we know that when price comes back to that level, retail traders will typically buy at that level and place their protective sell stop just below the level. We also know that most retail traders lose money… When price came back to level “A,” at “B,” and retail traders bought, price then dipped below “B” triggering sell stops for those who bought because of “B.” Keep in mind that all this is happening inside our demand zone where banks are willing buyers. So, when the retail sell stops were being triggered during the decline, “B,” who do you think was buying and filling those orders? If you said banks, you are correct for the most part. This is exactly where Online Trading Academy students were instructed to buy also. Partly because of the demand and partly because the chart strongly suggested retail sell stops would be sitting at that level which is where we want to buy. Being able to out-think your competition means understanding exactly how your competition thinks and acts.
My hope from this piece is that you understand how important it is to have a competitive edge when putting your hard earned money at risk in the markets. Each day wealth is transferred from those without an edge into the accounts of those who have that important edge.
Hope this was helpful, have a great day.
Sam Seiden – firstname.lastname@example.org