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Profitable Trading

Walmart, Tesco, Costco, Sam’s Club, just to name a few. These are some of the biggest retailers in the world, huge operations that make fortunes in revenue. How do they do it? What is their big secret? Simple: at the end of the day, they have mastered the art of buying at wholesale prices and selling at retail prices. Wait, this is supposed to be an article on trading so why write about the retail world of gadgets, clothes, appliances, and more? It’s an important topic if you want to understand how to be a consistently profitable trader. Their buying and selling actions in the markets they operate in are no different than the actions of the consistently profitable trader. What most people don’t realize either is that big banks and institutions are in the exact same business. Think of any big bank or institution around the world, they derive profits the same way. Where Wal-Mart buys the plastic, toothpaste, and everything else at wholesale prices and sells to us at retail prices, banks and institutions get the stock and bonds at wholesale prices and sell to the public at retail prices. They do this every day just like Wal-Mart. There really is no difference at the core. The good news is that the trader can become the Wal-Mart or Bank, all this from the comforts of their own home and no having to deal with employees, overhead, and more. It all comes down to identifying wholesale and retail prices on price charts and then buying and selling at those levels.

Let’s get more specific with these actions so that you can become a better trader by the end of this article. For Wal-Mart or Goldman Sachs to profit, they have to make sure that there are many willing buyers to pay the retail prices they are charging. When we trade, we must do exactly the same thing, we need retail buyers who are willing to buy at the retail (supply) levels we are charging. Take the example below from a trade during yesterday’s morning trading session. In the session, I identified a supply level in the NASDAQ. This is a price level that according to our rule based analysis had much more willing supply than demand. Another word for a supply level is “retail.” Shortly after this price level was identified, price rallied up to our pre-determined supply (retail) level which means people were convinced the NASDAQ was worth buying at that retail price (circled area). After they bought, price declined as it should and we was able to buy lower at wholesale prices (blue line), profiting from this trade.

NASDAQ 5 Min Chart and Trade – 6/17/13


Again, this is really no different from paying extreme retail prices for a new car. As soon as you sign the papers and drive it off the lot, the price declines dramatically. The first step in this process is to accurately identify key supply (retail) prices in a market. The second step is to wait for someone to buy from you at that level. Just like people walk into Wal – Mart each day and pay retail prices, people will be more than willing to pay your retail prices in the markets. This is because most people buy on good news and in strong up trends. In both cases, they are typically buying at or near retail prices.

Take a good look at the chart and specifically look at the supply level and then the rally into it followed by the decline. We are looking at the NASDAQ.  That picture is the same picture of price movement if you were to buy something at Macy’s and then try to sell it at a garage sale at your home. You are going to sell it for a much lower price than you bought it for at the retail store. Whether we are talking the NASDAQ trade or a Wal–Mart product, the chart is identical. Just like the retail store, you must know what retail price to sell at (supply levels) and you must have the patience and discipline to wait for someone to be willing to buy at that level.

Good traders know price levels that are too low (demand/wholesale) and price levels that are too high (supply/retail). They buy at wholesale prices from people who are trained, conditioned, and willing to sell at wholesale prices. They also sell at retail prices to buyers who are trained, conditioned, and willing to buy at retail prices. Then, they just repeat the same simple process over and over for the entire life of their trading. When I was on the trading floor of the Chicago Mercantile Exchange, this is what traders did. No one cared about news, trend, opinions, or anything. It was simple buy low/sell high and vice versa. When I write articles that unveil the simple truth of proper trading and investing, I typically get some hate mail from people in the industry. This is not rocket science; how you make money buying and selling things in markets doesn’t change. This is not to suggest that profitable trading is easy. You do need the skill to identify retail and wholesale prices (our supply/demand levels). However, how profits are derived is quite simple.

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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