The other day, someone asked me what I do for a living. I said I trade and am part of a trading education organization. They asked a follow–up question and I said:
“I teach people what schools don’t so they can live the lives they want to live.”
The world of market speculating is made up of everyone from the active day trader, to the longer term investor, to major corporations and banks worldwide… speculating in all kinds of markets and asset classes. People all around the globe pushing buy and sell buttons each day in hopes of achieving income, wealth, profits. Never in history has there been so much education on this topic on the internet, or books written on how to speculate in markets. Each weekend in many cities around the world, there are educational seminars given on how to “get rich” from trading. With so much education on how to properly speculate in markets out there, why is it that most people lose money trading? How is it that hardly any investors ever come close to achieving their financial goals? How can this be? The answer is twofold and is the focus of this piece.
First, it’s because of most of the education that’s out there. Most education is loaded with conventional Technical and Fundamental analysis which tends to teach you how to buy when everyone else buys and sell when everyone else sells. This herd mentality is high risk, low reward and low probability.
Conventional Technical analysis is based on pattern recognition that has people buying after price has rallied and also offers buy and sell signals based on indicators and oscillators that always lag price which means high risk buying and selling. Conventional Fundamental analysis offers buy signals only after good news is present and company numbers are solid. Where do you think the price of a stock is by the time this good news is offered to you? If you guessed high, you’re correct almost always. Remember, the only way to be consistently profitable when buying and selling in markets is to have a strategy that has people buying after you buy, at higher prices than you paid and selling after you sell, at lower prices than you sold at. Conventional Technical and Fundamental analysis does not help us in this regard. The basic principles of these two ways of thinking ensure you will buy and sell with the herd, when it’s too late; high risk and NO EDGE. If proper market speculating was as easy as reading a book, wouldn’t every librarian be a multi-millionaire from trading?
The second reason most people lose money in the global trading markets, which is really part of reason number one, is that they throw all simple logic out the window. When you go to buy a car and you’re at the dealership and see the car you have your heart set on, you see the price and its $20,000. Do you go to the dealer and say; “I like this $20,000 car so much I want to pay you $30,000 for it? Of course you don’t, you likely offer $17,000 or something like that. In trading, most people wait for confirmation of higher prices and then buy, which is the opposite of how they buy things outside of trading, this makes no sense.
We once had a gentleman go through our training program and I will never forget the day I met him and spoke about the program. He approached me and said he wanted to learn how to trade. I said, “Before we commit to this, let’s have a conversation or two and make sure this is right for you.” You see, I always want to make sure whoever is coming into the training program has the best chance at succeeding. I don’t want to waste their time or ours.
My first question was, “What do you do for a living now?” He happened to own and run a pizza chain that he had just sold. As soon as he said that, I knew he had the best chance at doing this because he already knew how to make money buying and selling. In fact, there was nothing about buying and selling in a market that I could teach him that he didn’t already know; I will explain this in a minute.
Our first lesson went like this… I asked him to tell me about his business, which he did. He explained that the whole business comes down to the price of cheese. I asked him three simple questions:
What is the average price of cheese?
“Around $2.00 a pound,” he said.
If the cheese you buy is selling at $4.00 a pound, how much will you buy?
He said, “As much as I need.”
If the cheese is selling at $1.00 a pound, how much will you buy?
“As much as I can and store it,” he said.
I then told him that he was already a great trader and that there was nothing I could teach him about trading that he didn’t already know. What I could teach him, however, is EXACLTY what this proper buying and selling looks like on a price chart. He was already buying and selling in a market properly, he just didn’t know what that looked like on a price chart. This was an easy task for me because he already had the foundation of how you make money buying and selling down and had made plenty of money from it.
The most important part of today’s article for you to understand is this… The more you can bring the mind set and rules that you use each day to purchase everyday items at the grocery store, appliance store and so on into your market speculating, the better you will do. Do you ever use coupons to save some money? If you do, you already know how to buy at a low price. Take that same exact mind set and action into your trading world. The mass illusion is that proper trading is somehow different than how we properly buy things in everyday life.
Hope this was helpful, have a great day.