Lessons from the Pros

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Out-Thinking Your Competition

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 they 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:

1)    Mental: Having a mental edge is a combination of proper reality-based thinking (void of illusion), having extreme self control, and focus.

2)    Strategy: Having a strategic edge means owning a rule-based strategy that ensures success over your opponent. Your strategy must offer you the lowest risk, highest reward, and highest probability entry.

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.

To convey this important nugget of information to you, let’s use a very recent trading opportunity I found and delivered to our students in one of our graduate services.

The Supply and Demand levels grid you see above is a service I and my team produce each day for our graduates. It offers three supply and demand levels on ten (soon to be 20) of the biggest markets in the world. On May 31st, one of the levels on the grid was a demand level in the DAX Futures (German Stock Market) of 6209 – 6227. This is a level where our strategy told me there were unfilled buy orders from institutions, strong demand. The key nugget of information I want to share with you lies exactly in how I placed my demand zone shaded yellow. Exactly where the lines are placed determined the exact entry and protective stop. The fact that price rallied from that level in strong fashion and the pattern itself along with two other key Odds Enhancers suggested demand was strong in that area. You may be wondering why the yellow shaded area is just below the candles and not around them. Here is why: I know that once that gap up in price happens, most traders are going to plan on buying the “gap fill” when price revisits that area and fills the gap. Most will place their buy order right at the gap fill price and place their protective sell stop just below the gap fill price. I know all this because I know what all the trading books say to do and I know that most retail traders learn to trade reading trading books (this is why they lose money). When price goes below the gap fill and triggers the sell stops, who do you think the buyer is down there that fills those sell stops? It’s institutions of course (and Online Trading Academy students if they decided to take this trade). As you can see, price declined down to our demand level (buy zone) allowing us a very low risk, high reward, and high probability entry. As retail buyers on the gap fill were stopping out just below, our strategy had us buying and filling those sell stop orders with institutions. Price rallied strong from that level as significant supply was much higher. You can only out-think and outperform your competition when you understand how the game is really played. Believe me, I am no smarter than anyone else, I simply had the privilege of learning how trading really works the right way from the start.

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. Where do you think the profits in these trades come from?

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.