When we trade, we need to think and act like the institutional traders who are consistently profitable, not like the novice traders who routinely make bad decisions that lead to their losing money in the markets. Amateurs will usually chase price and tend to buy when they see new highs or panic sell after prices have dropped. This is ridiculous and no one can make money trading that way.
As an example of how absurd this action is, imagine walking into a car dealership and asking them to double the price before you buy. You would never think of doing something like that, so why should you buy stock after the prices have risen? We need to buy stock like we buy other things in our lives, we buy on sale.
Looking at the chart below, you can see exactly where the novice traders chased the new highs. Their chasing caused large green candles as they sought out shares from elusive sellers. Once novice traders were holding their shares, the professionals pushed prices lower to trigger the stops that those traders placed below their entries.
Once the novices were shaken out of the market, the professionals allowed prices to rise again. This triggered a new round of novice buying from those who were upset about being shaken out. You can see that once their presence was known due to another large green candle, the professionals repeated the process to again take their money!
When we include volume in the picture, you can see exactly when the novice traders jumped in.
The novice action of chasing price becomes more obvious in the following chart when you break the chart down into a one-minute time frame. You can see exactly where the flood of novice orders came in as they attempted to buy breakouts to new highs for fear of missing out on potential riches. Unfortunately for them, professionals with trained eyes observed this action and took advantage of it.
This occurs nearly every day on many stocks and even in other financial markets such as Futures and Forex. So, can you avoid being caught with the novice traders? You need to trade like the professionals and the institutions. To learn how to do that, come visit your local Online Trading Academy and be trained in our Core Strategy for trading the markets. Trading like the professionals will increase your chances for success!
Neither Freedom Management Partners nor any of its personnel are registered broker-dealers or investment advisers. I will mention that I consider certain securities or positions to be good candidates for the types of strategies we are discussing or illustrating. Because I consider the securities or positions appropriate to the discussion or for illustration purposes does not mean that I am telling you to trade the strategies or securities. Keep in mind that we are not providing you with recommendations or personalized advice about your trading activities. The information we are providing is not tailored to any individual. Any mention of a particular security is not a recommendation to buy, sell, or hold that or any other security or a suggestion that it is suitable for any specific person. Keep in mind that all trading involves a risk of loss, and this will always be the situation, regardless of whether we are discussing strategies that are intended to limit risk. Also, Freedom Management Partners’ personnel are not subject to trading restrictions. I and others at Freedom Management Partners could have a position in a security or initiate a position in a security at any time.
Editors’ Picks
EUR/USD holds gains above 1.0700, as key US data loom
EUR/USD holds gains above 1.0700 in the European session on Thursday. Renewed US Dollar weakness offsets the risk-off market environment, supporting the pair ahead of the key US GDP and PCE inflation data.
GBP/USD extends recovery above 1.2500, awaits US GDP data
GBP/USD is catching a fresh bid wave, rising above 1.2500 in European trading on Thursday. The US Dollar resumes its corrective downside, as traders resort to repositioning ahead of the high-impact US advance GDP data for the first quarter.
Gold price edges higher amid weaker USD and softer risk tone, focus remains on US GDP
Gold price (XAU/USD) attracts some dip-buying in the vicinity of the $2,300 mark on Thursday and for now, seems to have snapped a three-day losing streak, though the upside potential seems limited.
XRP extends its decline, crypto experts comment on Ripple stablecoin and benefits for XRP Ledger
Ripple extends decline to $0.52 on Thursday, wipes out weekly gains. Crypto expert asks Ripple CTO how the stablecoin will benefit the XRP Ledger and native token XRP.
US Q1 GDP Preview: Economic growth set to remain firm in, albeit easing from Q4
The United States Gross Domestic Product (GDP) is seen expanding at an annualized rate of 2.5% in Q1. The current resilience of the US economy bolsters the case for a soft landing.
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