How Money Is Really Made In Markets

By Sam Seiden of Online Trading Academy

Tuesday, August 14, 2018 6:30 PM EDT

Profitable trading and investing comes down to two groups, those who know what they are doing (banks and financial institutions) and those who don’t (average traders and investors). In the trading and investing world, those who know what they are doing simply get paid from those who don’t. This is no surprise as banks and financial institutions are very educated in the financial markets, average traders and investors are not.

I began my career on the trading floor of the Chicago Mercantile Exchange on the bank side of the business, so I learned what the smart money does and how the smart money thinks. When it comes to consistent profits for the short-term income trader or longer-term investor, there are only two questions that matter.

Where will price turn?
Where will price move to?

Most people think you can’t predict market turns and market moves in advance. I say you can and with a very high degree of accuracy. Let me explain.

Let’s start by simply answering the two questions and see what this looks like on a price chart. Once we do, we can apply this strategy to any market, whether investing in stocks, bonds, futures, forex, options, bitcoin, real estate, etc., and for any financial purpose (short-term income trading, long-term investing for wealth, asset protection, retirement planning, etc.).

How do you tell where will price turn?

Market price turns at price levels where supply and demand are out of balance. Banks and financial institutions are consistently very profitable, and they create the largest imbalances as they buy and sell the largest quantities. So, if we can see where they are buying and selling on a price chart, we can buy and sell there also. Here is what that looks like.

Live Trading/Investing Session

(Click on image to enlarge)

How to know where stock price will go and when.

During a recent live trading session in one of our live trading rooms, we identified a buying opportunity in Gold. Looking at the chart on the left (the setup), the yellow shaded area represents demand, where banks are buying Gold. How do we know this? Price was trading for a short period of time and then rallied strong from that level. That rally can only happen because demand exceeds supply. Shortly after, price declined back to that demand level, as seen clearly on the chart on the right (the result). When price revisits the demand level, we know novice traders are selling. We know this because only a novice trader or investor would sell AFTER a decline in price and AT a price level where demand exceeds supply (banks are buying). This is where we bought.

How do you know where will price move to?

In any and all markets, price simply moves from demand to supply and back again. Once all the buy and sell orders are filled at a demand or supply level, price simply moves to the next level. By seeing supply and demand on a price chart like we are doing here, we can predict market moves in advance with a very high degree of accuracy. Prior to deciding to take the trade and buy, we must know what the profit zone is. The profit zone is the distance from demand to supply. With supply much higher, just above the blue line, we buy at demand and sell at the blue line, our profit target.

Most people never come close to achieving their financial goals because they have a faulty money mindset. Meaning, they either don’t pay attention to price when investing, or they make buy and sell decisions backwards. For example, when buying a stock, most people make sure it’s a great company with solid earnings, strong management, a healthy balance sheet and a stock price that is in a strong uptrend. Think about it… When all those things are present in the stock, where do you think the price of the stock is? It’s almost always high, at or near retail prices (supply). The problem is people fail to realize the most important simple truth when it comes to profiting in the financial markets. How you make money buying and selling as a retail business or savvy shopper is exactly how you make money buying and selling in the markets. Buy at Demand (wholesale), sell at Supply (retail). This allows you to buy and sell where banks and financial institutions are buying and selling, which helps you now achieve your financial goals which is the key to living the life you choose to live.

No matter the asset class you’re investing in, learning this simple rule-based strategy and developing the skill set is the key to owning this knowledge. Attaining the proper money mindset is the key to executing the strategy successfully.

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Disclosure: I understand that Online Trading Academy instruction will prepare me to actively trade securities and/or other financial instruments for my own account at an appropriate financial firm which utilizes the Electronic transmissions of securities and other financial instruments orders to execute trades for its customers. I understand that this course is not preparation to be a Licensed Broker in the financial industry and will not help me get a job.

Online Trading Academy Training Program should not be construed as a recommendation or an offer to buy or sell any security or the suitability of any investment strategy for Student. The purchase, sale, or advice regarding any security, other financial instrument or system can only be performed by a licensed Industry representative; such as, but not limited to a Broker/Dealer, Introducing Broker, FCM and and/or Registered Investment Advisor. Neither Online Trading Academy nor its representatives are licensed to make such advisements. All purchasers of the Online Trading Academy Training Program or other Online Trading Academy products are encouraged to speak with a licensed representative of their choice regarding the appropriateness of investing/trading or of any particular investment/trading strategy.

Online Trading Academy training centers are independently owned and operated and each location may set its own fees for classes.

A Note About Terminology Used on our Website

As used on this Website and in our communications, the word "professional" or "Professional" is used as an adjective to describe the exceptional quality of our education and the high standards we require of our instructors and personnel in all our Centers. None of our courses will provide education to become a Licensed Broker in the financial industry, or licensing in any other profession, and no course of instruction will lead to any job, employment or professional certification.

As used on this Website and in our communications, the word "Graduate" or "graduate" means any person who has experienced our Core Strategy Courses (previously called Professional Trader Part 1 and Part 2) and any person who has experienced any other combination of classes which total at least seven full days of our trading and investing education.

We Help You Minimize Trading Risk

At Online Trading Academy, we understand the risks involved in short term trading and emphasize risk management in our classes. Enroll in one of our free seminars to find out more!

Understanding Trading Risks

Electronic active trading involves special risks and may not be suitable for everyone. Electronic active trading may also involve a high volume of trading activity. Each trade generates a commission and the total daily commission on such a high volume of trading can be considerable.

Electronic active trading accounts should be considered speculative in nature with the objective being to generate short-term profits. This activity may result in the loss of more than 100% of an investment, which is the sole responsibility of the customer. An electronic active trader should understand the operation of a margin account under various market conditions and review his or her investment objectives, financial resources and risk tolerances to determine whether margin trading is appropriate for them. The increased leverage which margin provides may heighten risk substantially, including the risk of loss in excess of 100% of an investment.

STATEMENT BY CHAIRMAN ARTHUR LEVITT SECURITIES AND EXCHANGE COMMISSION CONCERNING ON-LINE TRADING
JANUARY 27, 1999

Chairman Arthur Levitt today issued the following statement to investors:
The Internet and other new technologies are in many ways transforming how our capital markets operate. There are clear benefits to these changes including lower costs and faster access to the market for investors. I believe that investors need to remember the investment basics, and not allow the ease and speed with which they can trade to lull them either into a false sense of security or encourage them to trade too quickly or too often.

Over the last two years, particularly in recent months, the SEC has been hearing concerns about retail, on-line (Internet) investing. In fact, the number of complaints concerning on-line investing has increased 330 percent in the last year. Some of the issues raised specifically relate to on-line trading, others are generic to all investing. The majority of them can be addressed through better education and investors ensuring that they have done their homework.

Every day, more and more Americans are investing in the stock market, and many of them are doing so through the Internet. On-line brokerage accounts account for approximately 25 percent of all retail stock trades. And, the number of on-line brokerage accounts is expected to exceed 10 million by the end of the year.

While the manner in which orders are executed may be changing, the time-honored principles of evaluating a stock have not. An investor's consideration of the fundamentals of a company-net earnings, P/E ratios, the products or services offered by the company-should never lose their underlying importance.

Investing in the stock market-however you do it and however easy it may be-will always entail risk. I would be very concerned if investors allow the ease with which they can make trades to shortcut or bypass the three golden rules for all investors: (1) Know what you are buying; (2) Know the ground rules under which you buy and sell a stock or bond; and (3) Know the level of risk you are undertaking. On-line investors should remember that it is just as easy, if not more, to lose money through the click of a button as it is to make it.

In recent months, we have begun to identify a number of issues every on-line investor should be aware of. First, investors must understand the issues and limitations of on-line investing. You may occasionally experience delays on these new systems. Demand has grown so quickly that many firms are racing to keep pace with it. In the meantime, you may have trouble getting on-line or receiving timely confirmations of trade executions. You should not always expect "instantaneous" execution and reporting. There can and will be delays in electronic systems. You should investigate and understand options and alternatives to executing and confirming your orders if you encounter on-line problems.

Second, investors may sometimes be surprised at how quickly stock prices actually move. For example, many technology stocks have recently had dramatic and rapid price movements. When many investors attempt to purchase (or sell) the same stock at the same time, the price can move very quickly. Just because you see a price on your computer screen doesn't mean that you will always be able to get that price in a rapidly changing market. You should take precautions to ensure that you do not end up paying much more for a stock than you intended or can afford.

One way to do this is to use limit orders rather than market orders when submitting a trade in a "hot" stock. The result for investors that do not limit their risk can be quite surprising. Say an investor wanted to buy a stock in an IPO that was trading earlier at $9.00 and failed to specify the maximum they were willing to pay using a limit order. That investor could end up paying whatever price the stock has moved to at the time his order reaches the market -- $60, $90 or even more. If, on the other hand, the investor submitted a limit order to buy the stock at $11.00 or less, the order would only be executed if the market price had not moved past that level. Investors should understand the risk associated with trading in a rapidly moving market and make sure that they take all possible actions to control their risk.

Third, I am concerned that investors buying securities on margin may not fully understand the risks involved. In volatile markets, investors who have put up an initial margin payment for a stock may find themselves being required to provide additional cash (maintenance margin) if the price of the stock subsequently falls. If the funds are not paid in a timely manner, the brokerage firm has the right to sell the securities and charge any loss to the investor. When you buy stock on margin, you are borrowing money. And as the stock price changes, you may be required to increase the cash investment. Simply put, you should make sure that you do not over-extend.

Fourth, while new technology available to retail investors may resemble that of professional traders, retail investors should exercise caution before imitating the style of trading and risks undertaken by market professionals. For most individuals, the stock market should be used for investment not trading. Strategies such as day trading can be highly risky, and retail investors engaging in such activities should do so with funds they can afford to lose. I am very concerned when I hear of stories of student loan money, second mortgages or retirement funds being used to engage in this type of activity. Investment should be for the long-run, not for minutes or hours.

Millions of new investors have taken advantage of the unprecedented access and individual control the Internet provides. But, new opportunities present all of us with new responsibilities, challenges and risks. The SEC will do everything it can to protect and inform investors during this time of great innovation and change. But, investor protection-at its most basic and effective level-starts with the investor. I say to all investors-whether you invest on-line, on the phone, or in-person-know what you are buying, what the ground rules are, and what level of risk you are assuming.

Important Information about trading Foreign Exchange.

Trading foreign exchange is not for everyone. Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts.

For UK Complaints Procedures, click here

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