Lessons from the Pros

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Are You Properly Thinking Your Investments

Let’s start this piece by getting you in the right mind set. Think of how you buy and occasionally sell anything in your life. Once your mind is in there, continue reading…

Wal – Mart, 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 two simple things. First, buying at wholesale prices and selling at retail prices. Second, they have mastered the marketing game. Wait, this is supposed to be an article on investing so why write about the retail world of gadgets, clothes, and appliances? It’s an important topic if you want to understand how to be a consistently profitable investor and achieve your financial goals. Their buying and selling actions in the markets they operate in are no different than the actions of the astute investor buying stock. For you to be successful, you need to learn to properly think the market place you’re buying and selling in, just like Costco does.

When buying stock you should think like a wholesaler.

Let’s get more specific so that you can become a better investor by the end of this article. For Costco to profit, they have to make sure that there are many willing buyers to pay the retail prices they are charging. When we invest our hard-earned money into the stock market, we must do exactly the same thing to take profits. We need buyers who are willing to buy stock from us at the retail (supply) price levels we are charging. How does Costco get you to pay their retail prices? There are many ways, but let’s start with a look at the Costco sign above. This sign is in huge letters at the front of every Costco and on every piece of marketing material. Notice the word in blue that is a part of every Costco sign, “wholesale”. Why do you think that word is there? There is one reason and one reason only… To get you to think you are paying wholesale prices so that you actually walk in the store and pay their retail prices. In short, the word “Wholesale” is an invitation to get you to pay a retail price. Never forget, they buy at Wholesale prices and sell at retail prices, not the other way around. As an astute investor, you need to understand how to do this in the markets. Costco is really good at buying at wholesale prices which is why they perform so well as a company. Do you focus on buying stocks for your portfolio at deep discount wholesale prices? If not, why not? Wall Street certainly does and you can too.Tweet: Do you focus on buying stocks for your portfolio at deep discount wholesale prices? https://ctt.ec/jivn8+

Take the opportunity below from our OTA Global Supply and Demand Grid. This was a recent buying opportunity the grid offered us in the US Stock market (S&P). The yellow box is a demand zone. This is a price level that according to our rule based strategy had much more demand than supply, banks were buying there. Another word for a demand is “wholesale” and for supply, is “retail”. Shortly after identifying that level, price declined down to our pre-determined demand (wholesale) level which means people were convinced S&P was worth selling at our wholesale price. After they sold at demand (our buying opportunity), price rallied as it should and we were able to sell higher, profiting from this trade or investment.

OTA Supply / Demand Grid: S&P (SPY) Buying Opportunity

How to get a good price when buying stocks.

Take a good look at the chart, and specifically look at the demand level and then the decline into it followed by the rally. We are looking at S&P prices.  That picture is the same picture of price movement as Costco buying something and then selling to the retail public at retail prices, higher. Whether we are talking the S&P or a Costco product, the chart is identical. Just like the retail store, you must know what wholesale prices look like on a price chart (our rule based strategy) and then have the patience and discipline to wait for price to decline to that level to buy stock.

Free Trading WorkshopAs a market speculator, you really do have a retail operation going at your home if you think about it. Good traders and investors 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 or investing career. Try not to over think this and keep it simple.

Hope this was helpful, have a great day.

Sam Seiden – sseiden@tradingacademy.com

*You can find another example to demonstrate this concept here.

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.