From a young age, we are conditioned to trade and invest incorrectly. We naturally run from things we are fearful of and are drawn to things that make us feel good. If you take this action in trading, you are headed for trouble which in the trading world means losses. For example, if your invitation to buy into a market comes only after an uptrend is well underway, all the indicators are pointed up, and the news is good on that market, where do you think price is in that market? Yep, it’s likely very high. To buy here completely goes against how you make money buying and selling anything and is very high risk. Never forget that when you buy, many people have to buy after you and at higher prices or there is no chance you will profit in your trade. To obtain an entry that allows you to buy before others and at price levels where the risk is low, most of the time (if not all the time) you are buying at the end of a downtrend, when most indicators are pointing down, and when the news is bad. This action is completely against our mental make–up.
As I said before, we are conditioned from birth to trade incorrectly. That action or belief system is often reinforced during the many years of traditional finance/economics high school and college education. For example, most college courses on markets teach to us to do plenty of research on a stock before buying into that market. The general rule is to make sure the company has good earnings, good management, is a leader in its industry, and has a stock price that is in a strong uptrend. Again I ask you, where do you think the price of the stock is when all this criteria is true? Almost always, the stock price is very high when this criteria is true which ensures that if you buy now, you are simply paying everyone else who bought before you at lower prices. I am not suggesting you should not buy the stock when this criteria is present. I am however suggesting you should wait and buy it when price declines to wholesale levels (demand) where banks are buying.
In my opinion, there are two things that you must have if you are to succeed at trading. First, you must have a solid understanding of how a market really works and a rule based strategy based on the objective laws of supply (retail price) and demand (wholesale price). Due to very little regulation in the trading/investing education industry, most people learn to trade completely wrong because they are learning from someone who is good at marketing but not so good at trading. This ensures that many people who attempt to trade will fail as they never learn how a market or trading really works and, instead, are poisoned with trading education and information that has them buying high at retail prices and selling low at wholesale prices, which is the opposite of what Wall Street does. This path is fraught with lagging indicators and oscillators and conventional technical analysis information that leads to high risk, low reward trading and investing.
Second, you must have the discipline to follow that rule based strategy. The lack of discipline factor likely eliminates many aspiring traders which leaves a select few that ever make it. Before you stop reading this piece and throw it into your fire place because it is so negative, sit tight and read on, help is on the way…
I have been trading Stocks, Futures, Forex and Options for many years, and being around new traders at Online Trading Academy I have seen so many people come into the program not having the two most important pieces of the trading puzzle mentioned above. Let’s go over a trading opportunity from one of our services at Online Trading Academy in hopes that you will get closer to having a solid understanding of how proper trading and markets work, and then we will deal with the discipline issues that can be so challenging for new traders and investors.
Supply/Demand Grid Trading Opportunity – 5/13/16: NASDAQ Futures
Here is a typical income trade that was found using our Supply Demand Grid. The focus of the Grid is to identify where banks and financial institutions are buying and selling in the markets so our members can also. We first identify Demand (wholesale, where we want to buy) and then Supply (retail, where we want to sell). This was a shorting opportunity at supply as seen on the chart. Next, we were very happy to sell to someone who wanted to buy after a rally in price and at our predetermined supply level as that is the low risk / high reward / high probability time to sell for us. Understand that the laws of supply and demand ensure that the buyer who buys after a rally in price and at price levels where supply exceeds demand will most often lose, so we use our rule based strategy to make sure we are there to take the other side of that trade and sell to the buyer who is buying at supply. Next, as price declines from supply (retail prices), we want to take profit at or near demand (Wholesale prices). Who are you buying from at demand when taking a profit on the short position? You are buying from the trader who is making the same two mistakes every consistent losing buyer and seller of anything makes. First they are selling after a decline in price, mistake number one. Second, they are selling at a price level where the chart is suggesting demand exceeds supply, simply put, because the basic human brain is wired to buy when everyone else is buying and sell when everyone else is selling. The smart money (banks and financial institutions) take the opposite action. That’s why they have all the money, it’s given to them. I know all this because I started on that side of the business at the Chicago Mercantile Exchange.
If you think I or members of Online Trading Academy are able to take these trades because we have somehow de-humanized our brains and have some super powers that only successful traders have, think again. We think and feel much of the same things everyone else thinks and feels. The key is that I realized years ago that my human brain is flawed when it comes to proper trading and investing and has the potential to be my own worst enemy, so I make sure I do my objective rule based analysis based on the laws of supply and demand and then take full advantage of today’s fantastic order execution capabilities to make sure emotion never even has a chance to come into my trading world: “OCO” (order cancels order), one of the most important tools in trading. I am able to enter an order to buy at demand, enter a protective stop order to limit the risk, because you (and I) will have loses from time to time, and also enter a limit order to take profits, all at the same time. Once I set up that order and execute it, I am hands off for that entire trade from start to completion. This accomplishes two things. First, it takes care of the emotions; and second, it means we don’t have to sit in front of the computer screen all day. Life is way too short to do that anymore! Plan it, set it, forget it.
Today, just about any type of order you can think of is available. I used a custom API which is a custom version of a typical OCO, but you don’t need that anymore, everything is available. I encourage you to begin to take advantage of the opportunity to set and forget your short term income and long term wealth trades and investments.
As always, never forget that those who know what they are doing in the markets simply get paid from those who don’t, so make sure you have the two issues discussed in this piece figured out before you put your hard earned money at risk.
Hope this was helpful, have a great day.
Sam Seiden – firstname.lastname@example.org