Lessons from the Pros

Featured Article

What Do Trading and a Retail Business Have In Common?

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. The difference is that the trader can do all this from the comforts of their own home.

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 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) price levels we are charging. Take the example below from a recent live XLT (online trading room) trading session. In the session, we identified a supply level in the Euro. 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”. A short while later, price rallied up to our pre-determined supply (retail) level which means people were convinced the Euro was worth buying at our retail price. After they bought, price declined as it should and we were able to buy lower, profiting from this trade.

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 walking into Walmart each day and pay retail prices, people will be more than willing to pay you 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.

Euro – 5 Minute Chart

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 Euro.  That picture is the same picture of price movement if you were to buy something at Walmart 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 store. Whether we are talking the Euro trade or a retail store 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 duration of their trading, just like the retail store. While we do this for you in our trading rooms, the XLT (Extended Learning Track), we do it in a very educational way so that you also do it on your own. My hope is that explaining it this way may help you understand that trading is not reinventing the wheel. How the profitable short term and long term trader makes money is exactly how the retail store makes money. The difference is the trader has a lot less overhead and headache.

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.

Join over 170,000 Lessons from the Pros readers. Get new articles delivered to your inbox weekly.