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Is It a Duck or a Lobster? Part 2

If it looks like a duck, walks like a duck, quacks like a duck, smells like a duck…it’s probably not a lobster. No matter what the leading research analyst on ducks and lobsters says. Even if someone wins a Nobel Prize because they have determined that a duck is actually a lobster based on a sophisticated mathematical equation, it’s still a duck. Adam Smith, whom many call the father of economics, laid out the ground rules for supply and demand hundreds of years ago. In his book, “The Wealth of Nations,” supply and demand is explained in very simple terms. Smith, however, did not invent supply and demand. It has been here all along and guess what, it hasn’t changed and it never changes. When price is at a level where willing demand exceeds willing supply, price will rise. When price is at a level where willing supply exceeds willing demand, price will decline. Over the centuries, certain big name self-promoting economists have tried to twist this simple equation with fancy math to make a name for themselves, sell some books, and win fancy prizes, only to eventually be proven dead wrong. The math works, but it’s the old garbage in garbage out.

However, gravity is always gravity. There are certain principles of how the world works that NEVER change. In our world of proper trading, the only way to profit consistently is to buy low and sell high. This is how you make money buying and selling anything. A successful business buys or produces at wholesale prices and sells at retail prices. Good news: this is exactly how the profitable market speculator does it as well.

When you become a graduate at Online Trading Academy, you gain access to some powerful tools and hand holding services. One of these is our graduate online trading rooms, the Extended Learning Track (XLT). This is a service for grads where instructors like myself and others identify and set up short and long term trading opportunities for XLT members in a very educational way in the Stock, Futures, Forex, and Options markets. These trades are given with exact entry, stop, and targets. Above is a picture of one of a live XLT sessions I was leading. The opportunity was to sell short at a “fresh” supply level in the Nasdaq Futures. Price had been rallying and was nearing this supply level. When I say supply, I mean that this is where our rules-based strategy told us institutions were selling (unfilled sell orders).

As you can see on the next chart, price reached our supply zone and the trading idea met entry. Another word for supply is “retail.” So, when price reached our retail level, XLT members were instructed to sell short, but who were we selling to? We were selling at retail levels to people who are  willing to pay retail prices. Why would someone buy at retail price levels? They obviously don’t understand that proper trading is no different than how the gas station profits on chewing gum. They buy the gum for $0.25 and sell it to us for $1.00. They just keep repeating that simple process over and over. If they sold the gum for $0.25 and bought it for $1.00, two things would happen. First, they would have plenty of very happy customers who love them (the buyers). Second, the gas station would be out of business at some point soon.

The market ended up turning lower at our supply level and reaching the predefined profit target for our XLT members.

As I wrote about last week in an article entitled “Focus,” the key is to keep things extremely simple and follow simple rules. If you are having issues with trading and ready to pull your hair out with frustration, perhaps you are complicating something that is actually quite simple. Maybe you are trying to turn the reality of how markets really work into a way that they don’t. Maybe you are really just looking at a duck, thinking it’s a baboon. It’s really just a duck…

Hope this was helpful, have a great day.

Sam Seiden


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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