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Do You Really Understand Proper Investing?

Have you ever wondered why the percentage of people who fail at trading is so high? I have heard that 90% or more of people who dive into the trading world end up losing their money. What about average investors, do most people really achieve their long term financial goals? Compare for a moment, the average trader or investor’s returns to the average Wall Street firm’s returns. We would probably all agree it’s a lopsided equation. But, what does the average trader or investor do? The average person “buys stock.” What is Wall Street’s primary business? If you said “selling stocks,” you’re correct. So, one group is buying stocks and the other is selling, and the sellers are making all the money. Understand that I am not suggesting we should all stop buying stocks and start selling them. I am, however, strongly suggesting that you start thinking and acting like the average Wall Street firm (or consistently profitable trader) who is laughing all the way to the bank, typically with your money.

Free WorkshopWhy is this profit equation so out of balance? Why do the masses lose and the few successful traders do so well? To answer that question you need to think about how the average trader or investor is trained and conditioned to “buy” into a market, or a stock for that matter. This includes you, me, and anyone else you know. Take yourself back to grade school, high school, college, grad school, and also include just about any trading book you have ever read. I remember the lessons on how to buy into a market. When it’s a stock, we are taught to make sure:

  1. It’s a good company
  2. It has strong management
  3. It has a healthy balance sheet
  4. It has very strong earnings, especially compared to competitors
  5. The stock is in an uptrend

When all these things are present with a stock, where do you think the price of the stock is? Do you think it’s ever low? It can’t be by definition. When all those items are true, the price of the stock (market) is always high and typically at price levels where the average Wall Street firm or consistently profitable market speculator is selling. People don’t realize that almost everyone from a young age is taught and conditioned to do this completely backwards. I mean, think about how you profit buying and selling anything else in life. We always try and buy things when they are cheap and sell when price is high. Why is it that when people put their hard earned money at risk in the market, they do the exact opposite? The core reason is because of a mass illusion which is this: people think that how you buy and sell things in other parts of your life is somehow different from how you properly buy and sell in the financial markets. The truth is, there is no difference! This is the single most important edge the consistently profitable trader (or Wall Street firm) has over the massive investing public around the world.

Who Really Makes money?


Consider the two pictures above on the left and right. Ask yourself, who really makes consistent profits? Let’s start on the left. Many traders and investors load their charts with indicators and oscillators, so many that it becomes hard to see the candles on the chart. I have also listed a few of the many conventional Technical Analysis terms below the chart. Now, truly ask yourself this question: Do you really know anyone who makes a consistent low risk living year after year with the chart or items on the left? I already know the answer to this question, which is no. This is because there is a major flaw with that school of thought. Everything you see there lags price and only gives buy signals after price has moved higher which guarantees you are not going to buy low and sell high. Instead, this school of thought has you buying high and selling low which is exactly what the consistently profitable trader wants you to do. What about the picture on the right, do they make consistent profits? You bet they do. Walmart makes more money than some countries print. How do they do it? What is their big secret? They buy at wholesale prices and sell at retail prices and people line up day and night to pay the retail prices they are offering. What a great trading company! What I pride myself on in trading is acting exactly like Walmart. It may not sound fun, exciting, or sexy to desire being Walmart but trust me… in trading, you want to be Walmart because like the average Wall Street firm or consistently profitable trader, they are laughing all the way to the bank.

Gold (GC) Core Strategy Trade


There are two very important components to consistently profitable trading. First, understand that how you make money in any other part of life, buying low and selling high, is exactly how you profit when speculating in the financial markets. Second, learn to identify wholesale and retail prices on a chart. Once you can do this, just buy at wholesale prices (demand levels) and sell at retail prices (supply levels). Let me walk you through a trade I took in Gold to help you begin to identify the buying and selling patterns of Walmart, Costco, Goldman Sachs, JP Morgan, and the rest. First, look at the level identified as Supply (shaded yellow above). We call this a supply level or “retail” price level because price could not stay at that level and declined from that level. This happens because supply exceeds demand at that level. Now notice the area identified as Demand (shaded yellow). We call this demand or “wholesale” prices because price could not stay at that level and had to rally away. This can only happen because demand exceeds supply at that price level. The distance between the demand and supply level on the chart is the zone or “profit margin.” Am I analyzing this market or product any different than Walmart, Costco, or Goldman Sachs would? Nope… The trade I took, which is shown, was simply selling short at predetermined retail prices (supply) to someone who was willing to buy at that price, then taking profits by buying back the short position closer to predetermined wholesale prices (demand) from someone who was more than willing to sell at wholesale prices. Why would someone buy at retail prices and sell at wholesale prices? Simple, because they are conditioned to do this through conventional education and Wall Street.

How is this any different than how Walmart profits each day? What I do may be boring because I am doing the same thing every day, buying at wholesale prices and selling at retail prices, but I am not in the trading and investing world for excitement. The main idea to take from this piece is to understand that how you make money buying and selling anything is exactly how you make money trading. There is no difference. Also, if you’re thinking that I should stop writing about this concept because too many people will catch on and then the supply/demand strategy will not work for the rest of us anymore. Have no fear… There are an endless amount of people who will always be willing to buy at retail prices and sell at wholesale prices. Everyone is taught to do this backwards from a very young age, the conditioning of the belief system is so strong. If you want more comfort, just go to the book store and read a trading book. Almost all of them have you buying after price has already rallied. Let go of dangerous conventional thinking and embrace the opportunities that come with reality based thinking.

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.

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