One of the first things I tell new traders when they ask for advice is to really focus on what’s important and don’t spend too much time on anything else. What I am suggesting is that you pay attention to the reality of what the price action is really telling you. Being aware of the simple messages price sends is what most people ignore, and this is one of the most important components to achieve the desired results when it comes to trading and investing.
If you think what I am suggesting is a waste of time and just another article on trading psychology, think again. Think of some big mistakes you’ve made in your life. It could be in trading, a failed relationship, a bad choice that cost you your job, losing part of your nest egg to a bad investment and so on. I bet the ultimate reason you made this mistake is because you were not paying attention to a reality that was right in front of your eyes all along. Do you look back on that mistake these days and say, ‘How could I have done that?’ ‘How did I not see that coming?’ It all seems so obvious after the fact. It all comes down to simply paying attention to the reality of what is happening.
We talk about this in live trading sessions, the Extended Learning Track (XLT). We focus more than anything else on paying attention to the reality of what PRICE is telling us. Not thinking too deep but, more importantly, paying close attention to the simple supply and demand information the market is always conveying to us. What is important for you to understand is that this important market information is only given to those who really listen. To illustrate this, lets look at a recent trade setup in one of my live trading sessions.
Sam Seiden Live Trading Session, Gold Futures 7/09/18
The black lines that extend from the yellow boxes on the chart above are drawn around an area of trading which we call supply. During the period of trading in the yellow boxes, price was trading sideways and then, all of a sudden, price declined from that level in strong fashion, as you can see above. What the market was telling those who were willing to listen at that time was simply that supply greatly exceeded demand at the origin of that decline in price, which is why price spent so little time at that level (in the yellow box). This is where the bank/institution sell orders were, the smart money was willing to sell at that price. We call this a supply zone or sell zone. This set up a quality trading opportunity in the near future, for those who were paying attention.
After the big decline from that level, price started moving back to that supply level over on the right side of the chart. Price eventually rallied back up to that level where we had our predetermined supply zones. This is where we look to sell short. What makes this a high probability shorting opportunity is best understood when you focus on who is on the other side of your trade, the buyer in this case. The buyers who bought when price revisited our supply zone were making two key mistakes. First, they bought after a rally in price and second, they bought at a price level where supply exceeded demand, the chart already told us that. These two actions tell us that these are novice traders who take action when the odds are stacked against them. By taking the other side of their low odds trade, we are taking the high odds trade. Gold went on to reach the target for our members who took the trade.
Being able to consistently identify turning points in markets is the key to low risk and high reward market speculation. This begins with being able to objectively quantify demand and supply in any market. To get to that point, you must have to be able to do something most people can’t, and that is pay attention to the reality of how proper trading and investing really works. Instead of reading all the trading books and learning to buy and sell in markets when everyone else buys and sells, which offers no edge, pay attention to the reality of what is happening in front of your eyes. Most traders try and analyze so much information that they end up with a very complex strategy that clouds the simple realities of price movement and that is a mistake.