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Think and Trade Like an Institution

Over the past 10 – 12 years, the stock market has been in a big sideways range. The average retail investor who has parked his or her money in the stock market has not seen long term capital appreciation over that period. I suppose if you add inflation into the mix, this average retail investor has perhaps lost during this period. What about some of the major institutions like Goldman and others during this period. Have they had flat returns over this period? Many have recorded historic profits year after year during this period. If you think about it however, the institutions are buying and selling in the same markets during the same period as retail investors yet they are making all the money. What about short term trading? It’s no secret most retail day traders lose money. Yet, many major institutions buying and selling in the exact same market as the day traders are making fortunes consistently. For an individual to find success short term or long term trading in the financial markets, the most important thing I tell Online Trading Academy students is to stop thinking and trading like a retail trader and investor and start thinking and trading like an institution and that is the focus of this piece.

While it would take a book to go over all I go over with students on this topic, I can share a recent example that should begin to shift your mind to the institution side of trading. Below is a recent trade we took in the Euro. Notice the pivot low in the lower left part of the chart. All trading books would call that price “support”. When I follow book rules and extend a green line over to the right, the trade that retail traders are taught to take is to buy when price declines to that line and put my sell stop just below the green line. While the books say and do that, I tell our students not to do that because that’s thinking and trading like a retail trader and retail traders lose. When price goes through that level and retail sell stop orders are activated, who do you think the buyer is down there? Institutions for the most part of course. So, if that is where institutions are buying, that’s where I want to buy. The trade was taken and a short term trading profit of $1,300 was achieved.

Again, there is a big difference between how a retail trader thinks and trades vs. an institution. The retail investor world blames institutions for investors lack of performance but is it really their fault? They are in the business to make money for themselves first and foremost and we can’t fault them for that. I am in no way trying to defend one group or the other but instead, trying to shed light on a heated topic that is very much misunderstood. For example, when an investment bank gives a report on a company and they say the company has good earnings, a healthy balance sheet, strong management, the stock is in a strong uptrend, and they see the company achieving stronger earnings in the future, are they saying anything that is not true? Most of the time that information is correct however, the average retail investor takes that information as a buy signal and that is a mistake on the investors part. I do have an unfair advantage as I started not as a retail trader but on the institution side of the business. I got to see exactly how institutions operate, where exactly they buy and sell, and what this looks like on a price chart. I am very aware of how little the mass group of retail traders and investors actually understands about how money is really made and lost in markets which is one of the main reasons I write these articles.

If you are struggling with your trading or investment capital, it is likely because your mind and trading plan are still at the retail level. What you need to do is start thinking and trading like an institution.

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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