One of the first things I tell new Online Trading Academy students when they ask for advice is to really open their eyes and pay attention. What I am suggesting is that they pay attention to the reality of what is happening around them. Being aware of the simple things in life that most people ignore is one of the most important components to desirable outcomes and achievements.
If you think what I am suggesting is a waste of time and just another article on trading psychology, think again. Think of one or two of the biggest mistakes you have made in your life. It could be in trading, a failed relationship or marriage, a bad choice that cost you your job, losing part of your nest egg to a bad investment, and so on. I bet the ultimate reason you made this mistake was because you were not paying attention to a reality that was right in front of your eyes. Do you look back on that mistake these days and say “How could I have done that? How did I not see that coming?” It all seems so obvious after the fact. It all comes down to simply paying attention to what is happening all around you and being aware.
We talk about this in the Extended Learning Track (XLT). We focus more than anything else on paying attention to the reality of what the PRICE ACTION is telling us. Not thinking too deeply but more importantly, paying close attention to the simple supply and demand information the market is always conveying to us. What is important for you to understand is that this important market information is only given to those who listen.
Live Trading XLT Session, July 16th 2012
This picture is a screen shot of the XLT on July 16th, very early, hours before the US stock market open. We were looking at the NASDAQ Futures and discussing this market during the session. What we do in the first part of the trading and analysis session is go through the markets we trade and show students how we find and set up low-risk, high-reward, and high probability trading opportunities. The two lines on the chart above are drawn around a cluster of trading which we call demand. During that period of trading, price was not moving much, supply and demand appeared to be in balance. All of a sudden, price rallied from that level in strong fashion, as you can see above. What the market was telling those who were willing to listen at that time was simply that demand greatly exceeded supply at the origin of that rally in price which is why we drew two lines around the cluster of trading at that origin. This is where the institution buy orders were. In the XLT, we call this a “demand zone” or “buy zone”. This set up a quality trading opportunity in the near future, for those who were paying attention.
Once the market got going that day and well after we planned out the low-risk, high-reward, and high probability buying opportunity in the XLT, price eventually declined to that level where we had our predetermined demand zone (chart below). This is where we look to buy. What makes this a high probability buying opportunity is best understood when you focus on who is on the other side of your trade, the seller in this case. The sellers who sold when price revisited our demand zone were making two key mistakes. First, they sold after a decline in price and second, they sold at a price level where demand exceeded supply, the chart already told us that. These two actions tell us that these are novice traders who take action when the odds are stacked against them. By taking the other side of that low odds trade, we are taking the high odds trade. The NASDAQ long went on to reach the target for our XLT members who took the trade.
Being able to consistently identify turning points in markets is the key to low risk and high reward market speculation. This begins with being able to objectively quantify demand and supply in any market. To get to that point, you must have to be able to do something most people can’t, and that is paying attention to the reality of how proper trading and investing really works.
Instead of reading all the trading books and learning to buy and sell in markets when everyone else buys and sells (no edge)…
Instead of acting on the advice of others who likely get paid from that advice, not from trading…
Pay attention to what is happening in front of your eyes. Pay attention to what is happening around you.
Hope this was helpful. Have a great day.