Lessons from the Pros

Mixed Feelings

As I write this piece, I am sitting with Brandon Wendell and Sam Evans, outside at our hotel, in Dubai UAE, 20 feet from the warm Persian Gulf waters. We are here for the Online Trading Academy All-Star event which always gets me thinking a thought I don’t often share with anyone. As long as I have been trading and investing, I have been a bit worried about creating my own competition. Proper trading means having an edge over your competition. Without it, there is absolutely no way to profit, you will lose your account to someone who has a better edge than you. Specifically, you must have a rule-based strategy that has you buying before your competition buys and selling before your competition sells, consistently.

At All-Star events, many people join our Online Trading Academy family and end up in the Extended Learning Track (XLT) Program. While I am happy when someone new joins our community, I am just as happy when they don’t. We can’t have everyone buying at demand and selling at supply like we do. We need plenty of people to take the other side of our trades. It’s great that people sell at demand and buy at supply, what a gift! Don’t get me wrong, I love our members and work hard every day to make sure we are giving our best effort in helping them achieve their goals.

Toward the end of our all day education event, we play the “hard right edge” game. This is a fun game for attendees as they get to make a trade and try to win one of two prizes worth over $2,000. The game goes like this… We start with the opening candle of the day on a chart. As I scroll forward one candle at a time, attendees raise their hand when they are ready to either buy if they think the market will go up or sell short if they think the market will decline. They are only allowed to make one trade and we record it. One more note, the event is two days. The first day is for Online Trading Academy graduates and the second is for new prospects who have never taken an Online Trading Academy course but who are interested in learning more about us. For the past few events, we have used the same chart and an interesting pattern of behavior has emerged.

Figure 1

Here is the chart. I explain to the crowd of more than a hundred people that we are starting the game with a  Doji candle, “would anyone like to enter the market, the game begins now.” If it is the graduate day where many of the people in the audience are already in the XLT, most people jump right into the game and sell. After all, we have a gap up in price, into an obvious supply level to the left, and a Doji candle. The second day of the event when the audience is all people who are new to Online Trading Academy is often very different with this same chart. Every time the first trader decides that they want to buy, many hands go up and most of this group buys as well. What I find is that whatever the first trader does, buy or sell, others who decide to place a trade on this first candle do whatever that first trader did. It’s herd mentality live in action. Typically Brandon is sitting next to me on stage, entering everyone’s trades into our spread sheet and we always look at each other in disbelief. The fact that this market is opening right into a high odds supply level with a Doji candle means less to this group of new market speculators than what the actions of others is. It’s an amazing thing to witness. Most of the time, more than half the audience enters a trade (buying) on this first candle that you see in the chart, even though I announce over and over that they don’t have to enter the market on the first candle and should be patient. This group of new traders who have never taken a course with us buys and buys and buys, only because they see others buying and buying and buying. Keep in mind that this has nothing to do with reading a chart. This has everything to do with people not having the ability to think and act on their own and instead, simply doing what others do.

Figure 2

As you can see, price declines and fills the gap below. Those who shorted the Doji candle at supply profit and those who bought lose. After I scroll the chart forward a few candles from the opening Doji, the group who bought that open become silent and stoned faced, as if they were just hit between the eyes. Later, after the game is over and we are mingling with the audience, this group of people always tells me the same thing: “I knew I should have sold short and not bought, it was a Doji into resistance (supply)”. When I ask them why they bought, many have the same answer. They shrug their shoulders, look around and say “I don’t know.” Anyway, you get the point.

We analyze the statistics as well. The graduates’ performance is more than 400% better than the new folks’ performance. It’s the same story over and over. Those who have proper trading education derive their trading income from those who don’t.

In the Extended Learning Track (XLT), I have noticed over the past year from feedback that the list of consistently profitable XLT members has grown quite a bit. This means that each time I buy the S&P at demand (support) for a long entry, I am likely competing with XLT members for the limited number of contracts (or shares) available at that price. Yes, these markets are huge and volume is high but I do think about the issue of creating my own competition.

As for my issue of creating my own competition, I am less worried than ever and if I can help a few people achieve their goals by teaching them how money and markets really work, I am happy to lead an instructor team and do that. There are plenty of markets to trade and even if there weren’t, the powerful human emotions of fear and greed will keep plenty of people from buying where I buy and selling where I sell. In fact, these emotions typically have people buying where I sell and selling where I buy. In a perfect world, everyone would win and be profitable, there would be no losers, no frustrated traders. Unfortunately, this is not how the world works. Before you put your hard-earned money at risk in the competitive world of market speculation, make sure you know what you’re doing. Learn how markets really work, practice on a demo account, start small and low risk, and so on. If you’re thinking of taking a course at Online Trading Academy, great. If you’re not, that’s great as well, we have equal love for all.

Have a great day.

- Sam Seiden sseiden@tradingacademy.com

Note: A correction in last week’s article: Benton Woods should have read, Brenton Woods.