DO YOU REALLY UNDERSTAND PROPER INVESTING?

Without gainsaying, we’ve heard that over 80% of people who venture into trading and investing eventually lose their money. Besides, do most average investors achieve their long-term goals financially? For a moment, compare the returns of an average firm on Wall Street to that of an average forex, futures, or stock trader, and we would perhaps agree that the equation is unbalanced. But then, what do average investors or traders do that are different from what’s done on Wall Street?

Simply put, the average investor buys stocks at retail prices and sells at wholesale prices, while Wall Street’s primary business is buying stocks at wholesale prices and selling stocks at retail prices. So, while a group is buying stocks cheap (wholesale), the other is selling stocks expensive (retail) – and those selling stocks expensive make all the money. Don’t get things wrong: we aren’t advising against buying stocks. However, what is being said in essence is that you start acting and thinking like the average Wall Street firm, or better still, a consistently profitable trader.

Why is this profit equation so unbalanced? Why do the majority lose, and a few successful traders do so well? The answer to these questions demands that we reflect on how average investors or traders are trained to buy into the stock market. And this includes you, us and anyone else that you know. Looking back at high school, college, grad school, and trading books we’ve read, we can remember the lessons learnt on how to buy into a market.

Generally, in the stock market, we have been taught to ensure that:

It’s a good company

It has a healthy balance sheet.

The stock is in an uptrend.

It has strong management.

It has solid earnings, especially when compared to competitors.

If all these criteria mentioned above are present with a stock, where do you think the price of the stock will be? Low? Of course, not; it cannot be by definition. When all of those criteria mentioned above are true, the market price is always high, usually where average firms on Wall Street or traders making a consistent profit are selling. People do not realize that almost everyone from a tender age are usually trained to do this entirely backward. We mean, imagine how one profits from selling and buying any other thing in life. By default, we try to buy items when they are cheaper and sell when costlier. However, why do average investors do the exact opposite when they invest in the market? The answer isn’t farfetched: several people think that trading in regular life is different from how trading is done in the financial markets. The truth is, there is absolutely no difference. And this is the most notable edge that an average firm on Wall Street or a trader with consistent profits have over an average investor or trader around the world.

Now, Who Really Makes money?

Ask yourself, who really makes profits consistently? Many investors and traders stack their charts with oscillators and indicators, so much that candlesticks become so hard to see on their charts. However, have you ever asked yourself if anyone actually makes a consistent low-risk living, year after year with a chart having indicators scattered all over? Your answer is most definitely “NO,” which is yet another testament that that school of thought is laughable. Every indicator lags price; hence, they only give buy signals after the price must have moved higher, which guarantees that you aren’t buying low and selling higher. Instead, this school of thought gets you to buy high and sell low, which is precisely what the consistently profitable trader wants you to do.

Let’s discuss Walmart – do they make profits consistently? You bet they do! The money that Walmart makes is arguably more than what some countries print. But how do they do it? Simply, Walmart buys at wholesale prices and sell at retail prices. And still, several people visit day and night to buy goods at the retail prices that they're offering. What we take pride in while trading is precisely what Walmart does. It may not seem to be fun-filled, thrilling, or exciting desiring to be like Walmart, but trust us: to trade, you’ll want to be like them because they make profits consistently from their trades.

To consistently trade profitably, there are two essential components. First, you need to understand that there is no difference between how to make money in other parts of life and how to make profits in the financial markets. Secondly, you need to identify retail and wholesale prices on the charts. Once these are done, what's needed is to buy at demand levels – wholesale price – and sell at retail prices – supply levels.

Now, am I analyzing the market or product differently from how Walmart, Goldman Sachs, Costco, and others would? Of course, not. What we did simply was going short – selling – at predetermined supply prices to someone willing to buy at our price, and then taking profits by going long – buying – closer to predetermined demand levels from someone willing to sell to us at wholesale prices. Unfortunately, conventional education and Wall Street conditions people to buy at retail prices and sell at wholesales.

Now, this isn’t any different from how Walmart rakes in profits daily. What we do may seem boring because the same thing is repeatedly done daily – buying at wholesale prices and selling at retail prices. But then, we aren’t in the world of investing and trading for excitement, after all.

The main idea being passed across in this article is to understand that how to make money buying and selling anything is the same way you make money when trading. Additionally, if you think we need to stop writing about this idea because several people will get knowledgeable about it, and the supply and demand strategy won't work for the rest of us any longer, you need to dump your worries and rethink. This is because an endless number of individuals are always willing to buy at retail prices and sell at wholesale prices. Everyone has been taught to do this backwardly, even from a tender age. If you crave comfortability, visit the bookstore and read a trading book. You will discover that almost all of these trading books make you buy only when the price has moved higher, a similar trend when selling too. Ultimately, you need to dump dangerous conventional ways of thinking and embrace the opportunities that come with reality-based thoughts.

If you want to learn more about professional trading and investing across multiple asset classes such as forex, futures and stocks, please sign up for free at our online trading academy www.onlinetradingcampus.com and get access to a free three hour introductory course.