The world of market speculating is made up of everyone from the active day trader to the longer term investor, speculating in all kinds of markets and asset classes. People all around the globe push buy and sell buttons each day in hopes of achieving income and wealth. Never in history have there been so many books written on how to speculate in markets for traders and investors. Each weekend in many cities around the world, there are educational seminars given on how to “get rich” from trading. With so much education on how to properly speculate in markets out there, why is it that most people lose money? How can this be? The answer is twofold and is the focus of this piece.
First, it’s because of the content of most of the books and seminars. Most books and seminars are loaded with conventional Technical and Fundamental analysis which tends to teach you how to buy when everyone else buys and sell when everyone else sells (herd mentality), which is high risk, low reward, and low probability. Conventional Technical analysis is based on pattern recognition that has people buying after price has rallied and also offers buy and sell signals based on indicators and oscillators that always lag price, which means high risk buying and selling. Conventional Fundamental analysis offers buy signals only after good news is present and company numbers are solid. Where do you think the price of a stock is by the time this good news is offered to you? If you guessed high, you’re correct almost always. Remember, the only way to be consistently profitable when buying and selling in markets is to have a strategy that has people buying after you buy, at higher prices than you paid and selling after you sell, at lower prices than you sold at. Conventional Technical and Fundamental analysis does not help us in this regard; the basic principles of these two ways of thinking ensure you will buy and sell with the herd, when it’s too late, which means high risk and NO EDGE. Come on, if proper market speculating were as easy as reading a book, wouldn’t everyone be a millionaires?
The second reason most people lose money in the global trading markets, which is really part of reason number one, is that they throw all simple logic out the window. Let’s say you go to buy a car and you’re at the dealership and see the car you have your heart set on, and you see the price is $20,000. Do you go to the dealer and say; “I like this $20,000 car so much, I want to pay you $30,000 for it?” Of course you don’t do that; you likely offer $17,000 or some amount lower. In trading, most people wait for confirmation of higher prices and then buy, which is the opposite of how they buy things outside of trading. This makes no sense. I once had a gentleman go through my training program and I will never forget the day I met him and spoke to him about the program. He approached me and said he wanted to learn how to trade and join my program. I said, “Before we commit to this, let’s have a conversation or two and make sure this is right for you.” You see, I always want to make sure whoever is coming into the training program has the best chance of succeeding. I don’t want to waste their time or mine. My first question was, “What do you do for a living now?” He happened to own and run a pizza chain that he had just sold. As soon as he said that, I knew he had the best chance at doing this because he already knew how to make money buying and selling. In fact, there was nothing about buying and selling in a market that I could teach him that he didn’t already know, I will explain this in a minute. Our first lesson went like this… I asked him to tell me about his business and he did. He explained that the whole business comes down to the price of cheese. I asked him three simple questions: 1) what is the average price of cheese? “Around $2.00 a pound,” he said. 2) If the cheese you buy is selling at $4.00 a pound, how much will you buy? He said, “as much as I need.” 3) If the cheese is selling at $1.00 a pound, how much will you buy? “As much as I can and store it,”, he said. I then told him that he was already a great trader and that there was nothing I could teach him about trading that he didn’t already know. What I could teach him, however, was EXACTLY what this proper buying and selling looks like on a price chart. He was already buying and selling in a market properly, he just didn’t know what that looked like on a price chart. This was an easy task for me because he already had the foundation of how you make money buying and selling anything down, and had made plenty of money from it. The most important part of today’s article for you to understand is this:
The more you can bring the mindset and rules that you use each day to purchase everyday items at the grocery store, appliance store, and so on into your market speculating, the better you will do. Do you ever use coupons to save some money? If you do, you already know how to buy at a low price. Take that same exact mind set and action into your trading world. The mass illusion is that proper trading is somehow different than how we properly buy things in everyday life. Truth is, there is no difference.
Many so-called professionals like to complicate the process with smoke, mirrors, curtains, and slight of hand. They do this to trick you so that you will transfer some of your account into theirs, without you realizing it. The key for you is to keep everything “real.” Use your simple logic filter to ensure you will not lose some or all of your account to illusion. For your review, let’s walk through a real trade we took at Online Trading Academy.
In the upper left corner of this screen shot, we see a market that is falling fast and reaching what our strategy determined to be an objective demand zone (wholesale prices). Most people would not want to buy in that circled area because there is a downtrend and every book says to never by in a downtrend. There was also some bad news causing price to crash which would make people very nervous when buying at that level. So, most people would not only not buy, some actually sold in that circled area. That is a chart of the Euro. What if I changed the market and made it the market for Samsung Smart (very smart) TV’s like you see on the right. If you saw price decline like that would you be more inclined to buy or not? Would you be afraid to buy on that decline or would you be very excited? Of course we would all be thrilled to buy that TV at a discount. Why then does just about everyone on the planet have opposite feelings or emotions with these two examples. The answer is simple, one is a financial market and the other is an example of anything else we buy and sell in life. Furthermore, you have been brainwashed to think that how you make money buying and selling in a financial market as a trader or investor is somehow different from how you make money buying and selling anything in life.
The chart in the middle, on the bottom is the result of that trade. Price turned higher, giving us a low risk profit on that trading opportunity. The reality is that the Euro was on sale for a short period of time and there was only a small amount for sale at that price meaning once they were all bought, price would rise. The chart gives us all this information if you understand our supply and demand strategy.
There is nothing wrong with following the rules of a trading book, just make sure you are the author and that your strategy has you buying at wholesale prices and selling at retail prices. To do this, start with using all the powerful buying and selling knowledge you already possess and use on a daily basis outside of the trading world. Bring this key but simple strategy into trading and you will soon be spotting “blue light specials” all over the place. Never forget, how you make money buying and selling anything in life is EXACTLY how you make money buying and selling in the financial markets.
Hope this was helpful. Have a great day.