When trading or investing in markets, the simple truth is you’re either thinking like a professional or providing income for one. You either have a competitive edge or you’re giving some of your hard earned money to someone who does. It is amazing to me that people in general focus very little on this most important topic. Most traders and investors buy when things look or feel good and sell when things look or feel bad which ensures they will not have an edge and never come close to achieving their financial goals. Two key items that give the select few an edge are:
- Your Mental Makeup: Having a mental edge is a combination of proper reality based thinking (void of illusion), having extreme self control, and focus.
- Proper Strategy: Having a strategic edge means owning a rule based strategy that ensures success over others. Your trading or investing strategy must have many people buying after you buy and many selling after you sell.
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’ll share with you how that works while looking at a price chart.
To convey this important piece of information, let’s use a trading opportunity from our new Core Strategy XLT (our Core Strategy live trading room).
“New” Live Core Strategy Trading Room – SPY (S&P) Demand 3/27/17 – The Setup
The screen shot above is of our new Core Strategy Live Trading room for Online Trading Academy members. On March 27th, there was a gap down in price followed by the formation of a demand zone. This is a price level where our strategy told us there were unfilled buy orders from banks and financial institutions (strong demand). With the room above from the gap, this offered us a nice profit zone to the upside, a very quality buying opportunity.
“New” Live Core Strategy Trading Room – SPY (S&P) Demand 3/27/17 – The Result
When price came back to our demand zone, it was time to buy. Who would sell to us on a gap down in price and also on a decline in price back to our demand zone? Only someone who sells when things look and feel bad/weak. Price gapped down that day because of some bad news. Retail novice market speculators will typically sell. All the supply that comes into the market on those days forces price down to demand as that is where all those new sell orders can be filled (this is how markets work). Then, when that last sell order is filled, there is only one place for price to go, up. This is reflected in the picture outlined on the chart and in this article. It is also the reason the astute market speculator buys when most are selling.
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. No one is pushing you to trade or invest. If you decide to, make sure you know what you’re doing and think like a pro. Each day, wealth is transferred from those without an edge into the accounts of those who have one.
Hope this was helpful, have a great day.
Sam Seiden – firstname.lastname@example.org