The Minefield Garden !!

The day someone decides they are going to pursue a trading career, they are typically making that decision because of the potential financial prize. In other words, they are making that decision because of the perceived benefit, not the risk and work it takes to achieve the benefit, and that all makes sense. After all, no one gets excited about risk and potential failure. What most people don’t understand, let alone consider is that they are about to step into a “minefield” of very sophisticated and strategic traps that have the potential to drain and destroy their bank account and self confidence all in one. When I look at the traders who do well and those who don’t, there is a clear observation. The traders who focus on the prize tend to lose money and never achieve their goal. The new traders who focus on the traps and risk tend to succeed and reach their goal. As always, it’s one group providing income for the other. That’s trading.

Discipline: This is a must. If you don’t have discipline in other parts of your life, don’t think you will magically have discipline when you start trading. In fact, trading will challenge your discipline more than you can imagine. From birth, we gravitate toward things that make us feel good and run from things that we are afraid of. In trading, you have to think the opposite if you want to succeed. What I mean is that we want to buy low and sell high. To buy low when prices are cheap and at a support (demand) level where they are likely to turn higher, you need to buy when everyone else has sold, after red candles, with down sloping indicators, accompanied by bad news, and so on. The act of buying low and selling high is NOT comfortable for the human mind. Therefore, you must have the discipline to follow simple rules.

Profits and Losses: People love profits and don’t like losses. This often leads to people taking profits quickly when they have them and refusing to take losses because they don’t want to lose. This action is VERY common and leads to a short trading career. Successful traders take losses quickly when their plan tells them to and they hold on to gains until they reach their target. In other words, they plan their trade and trade their plan. Think of Las Vegas. Have you ever realized how much money a casino losses in a day? The number is huge but they don’t care because they know they have a plan that ensures the gains are greater than the losses so the most important thing for them is to trade their successful plan that includes losses.

Determination/Longevity/Position Size : You have likely heard of the person who spent lots of time digging for gold. They dug a deep whole and found nothing. Dug deeper and found nothing. Dug a little deeper and found nothing and then gave up. What they didn’t realize is that they were only 5 more feet away from the gold. Someone else came in and only had to dig five feet and the gold was sitting right there. Trading is the same. You will be challenged. Trading is like a mirror. It reflects every emotional flaw you have and Murphy’s Law exposes all your flaws very quickly in trading. The journey to self empowerment with trading is a marathon, not a race so make sure you use small position while you are learning. Don’t take on risk until your demo trading proves that you have an edge that your competition doesn’t have. Then, begin your trading with as little position size as you can. Let your results dictate when you should increase that size. The problem you need to be aware of is typically, determination goes hand in hand with aggressive action. Don’t let the burning desire (determination) to reach the “prize” lead you to take on too much risk, too soon. Longevity is the key and properly handling risk with position sizing and small losses are the key to longevity. Instead, channel your strong determination into energy that allows you to follow your rules.

Some see trading as the safe beautiful garden with all its pretty flowers. Few astute market speculators realize that the pretty garden is really a mine field with deceptive traps designed to do one thing, drain your account. There are other traps in the mine field that separate the successful from the unsuccessful and I will cover those in time.
Until next time, Safe Trading !

- MASTERMIND

Find the Fool !

I have a friend, I’ll spare him the embarrassment of mentioning his name here, who always seems to buy and sell stocks at the wrong time. He watches a lot of TV  news channels and gets excited at the prospects of becoming rich quickly from any publicly traded company that happens to make the news. It struck me after having watched my friend lose plenty of money throughout the years, that there are many others who get involved in the markets the same way. They hear a hot tip, listen to a broker who pushes some brokerage inventory or watch the top performer lists on their computers.

As a trader, this is the type of person we would like to find. We want to find the consistently wrong investor/trader and take the opposite position. This will obviously lead to successful trades for us. Since I can’t share my friend’s contact information with all of you, I will have to share a way to find when the uneducated investors enter the market.

Most of you may have read trading books that state that increasing volume is good for the continuation of the trend. While this is true, there becomes a point of saturation where the markets cannot sustain the trend. Think of what makes prices rise. There has to be a buyer and a seller for every transaction. However, when there are many buyers chasing a limited amount of supply due to a limited number of sellers, prices will rise as the buyers outbid each other to claim the shares.

This will continue until most people who were interested in buying shares are already in or have stopped bidding as shares became too expensive. Now the market is saturated with too many worried holders of shares who will sell to realize profits. Unfortunately for them, at this time, there are few buyers for their shares and they become forced to sell at lower prices to attract buyers. Eventually, all of the supply will be dumped onto the market and prices will start to rise as buyers once again outnumber sellers. This is what happens behind the scenes in all markets and we see this action causing support and resistance levels.

The interesting thing about this price movement is that the amateurs typically enter into the trend AFTER it has already been moving. This seems counter intuitive as you wouldn’t walk into a car dealership and offer them higher than label price, or pay extra at the drive through just because you love the taste of a Zinger Burger (my colony friends know how delicious they are). However, when it comes to trading and investing, most amateurs look to buy after a large rise in price or sell after a large drop.

As a professional trader, I want to trade against these amateurs and in the same direction as the Institutions and Market Professionals. So the takeaway from this article is that when we trade, we must look for the highest probability entries at support and resistance. Often our trades will be confirmed immediately after we enter with large candles and professionals entering. We can help to time our exit at our target support or resistance when we see large candles signaling the amateurs’ entrance into the trend.

Trade with the professionals…find the fool and take the opposite position. As they say, "At the poker table, if you don’t know who the sucker is… it is you!" Learn the tactics that professionals use to trade and avoid common mistakes of the amateur.

Until next time, safe trading!

- MASTERMIND

Trading - The Law of Physics

Sir Isaac Newton was was born in England in 1642 and is considered one of the greatest scientists and mathematicians that ever lived. He lived for 85 years. In college, he had strong ideas about motion and broke them down into three laws which I will explain in simple terms below.

Law 1:  An object at rest remains at rest unless acted on by an unbalanced force. An object in motion continues in motion with the same speed and in the same direction unless acted upon by an unbalanced force.

Law 2:  Acceleration is produced when a force acts on a mass. The greater the mass, the greater the amount of force needed.

Law 3:  For every action, there is a equal and opposite reaction.

So often traders want to add more strategies to their trading tool kit, add more indicators, more information from the latest best selling trading book, and so on…it never ends. What most people fail to see is that there are a few basic principles that don’t change. Gravity is one that comes to mind and there are a few more. At the core of any significant economic, political, scientific, social, medical, psychological or cultural theory lies a quest to understand and quantify the forces of change, action, or energy. The theories that attempt to quantify “force” that have stood the test of time, date back centuries and are extremely simple.

In 1686, noted physicist Isaac Newton suggested in his laws of motion that an object will remain in motion until it is met with an equal or greater force. Noted economist Adam Smith suggested hundreds of years ago in his book “The Wealth of Nations” that when supply exceeds demand at a price level in a given market, price will decline. Smith and Newton didn’t create or invent the laws and principles for which they are famous. Demand, motion, and the relationships therein existed long before Smith and Newton, long before humans walked the earth for that matter. What these two individuals did, however, was look mass conventional perception in the face and challenge it with a reality that had been there all along. They were able to discover what no one else had because of a belief system that allowed them to open doors others never knew existed. If you notice, Newton and Smith didn’t figure out one specific issue. They had a belief system that allowed them to rather easily apply the core principles of their knowledge to a host of issues, producing answers the rest of the world still considers “ingenious,” centuries later.

In our MASTERMIND - AMC, we start most live trading sessions as  we identify the path of least resistance for price and most of the time, price goes exactly where we thought it would. Applying the simple “motion into mass” concept first and foremost is a key edge for those who use it. While it is very simple, most of the world will consider other pieces of information first when attempting to determine where price will turn and where it will go. Typically news, fundamentals, and indicators are the starting point for most traders. Another key is the ability to identify proper “force” on a chart, meaning real Support and Resistance.

If Newton were a trader, we suspect he would be a good one as he already has a solid strategy that has proven itself for a few hundred years. we are not suggesting you throw away whatever strategy you are using now and jump into what we're suggesting here, which is what we do at MASTERMIND. Start with simply looking at charts with the motion into mass, support and resistance thought in mind. Start identifying these opportunities. Once you are comfortable and confident, then make your switch.

Hope this was helpful, have a great day.

- MASTERMIND

Your Home Retail Business

Shoppers Stop, Big Bazaar, D-Mart, Reliance Fresh, Croma just to name a few…these are some of the biggest retailers in India, huge operations that make fortunes in revenue. How do they do it? What is their big secret? Simple: at the end of the day, they have mastered the art of buying at wholesale prices and selling at retail prices. Wait, this is supposed to be an article on trading so why write about the retail world of gadgets, clothes, appliances, and more? It’s an important topic if you want to understand how to be a consistently profitable trader. Their buying and selling actions in the markets they operate in are no different than the actions of the consistently profitable trader. The difference is that the trader can do all this from the comforts of their own home.

Let’s get more specific with these actions so that you can become a better trader by the end of this article. For D-Mart to profit, they have to make sure that there are many willing buyers to pay the retail prices they are charging. When we trade, we must do exactly the same thing, we need retail buyers who are willing to buy at the retail price levels we are charging.

Again, this is really no different from paying extreme retail prices for a new car. As soon as you sign the papers and drive it off the lot, the price declines dramatically. The first step in this process is to accurately identify key retail prices in a market. The second step is to wait for someone to buy from you at that level. Just like people walking into Walmart each day and pay retail prices, people will be more than willing to pay you retail prices in the markets. This is because most people buy on good news and in strong up trends. In both cases, they are typically buying at or near retail prices.

You really do have a retail operation going at your home if you think about it. Good traders know price levels that are too low (Support/wholesale) and price levels that are too high (Resistance/retail). They buy at wholesale prices from people who are trained, conditioned, and willing to sell at wholesale prices. They also sell at retail prices to buyers who are trained, conditioned, and willing to buy at retail prices. Then, they just repeat the same simple process over and over for the entire life of their trading career, just like the retail store.

We do it in a very educational way so that you can start your retail business at home. My hope is that explaining it this way may help you understand that trading is not reinventing the wheel. How the profitable short term and long term trader makes money is exactly how the retail store makes money. The difference is the trader has a lot less overhead and headache.

Happy Trading !

-MASTERMIND

Market Timing

I often talk about “Market Timing” but why is it so important? The main reason you would want to know how to time the markets turning points in advance is to attain the lowest risk, highest reward, and highest probability entry into a position in the market. Think about it, by entering as close to the turn in price as possible, you enjoy three key factors:

1) Low Risk: Entering at or close to the turn in price means you are entering a position in the market very close to your protective stop. This allows for maximum position size while not risking more than you are willing to lose. The further you enter the market away from the turn in price, the more you will have to reduce position size to keep risk in line.

2) High Reward (profit margin): Similar to number one above, the closer your entry is to the turn in price, the greater your profit margin. The further you enter into the market from the turn in price, the more you are reducing your profit.

3) High Probability: Proper Market Timing means knowing where the real buyers and sellers are in a market. When you are buying where the major buy orders are in a market, that means you are buying from someone who is selling where the major buy orders are in the market and that is a very novice mistake. When you trade with a novice, the odds are stacked in your favor.

So how do we time the markets turning points in advance? It all begins and ends with understanding how to properly quantify real Resistance and Support in any and all markets. Once you can do that, you are able to identify where sellers and buyers is most out of balance and this is where price turns. Once price changes direction, where will it move to? Price moves to and from the significant buy (support) and sell (resistance) orders in a market. So, again, once you know how to quantify and identify real support and resistance in a market, you can time the markets turning points in advance, with a high degree of accuracy.

I sometimes hear people say, “I am only trying to catch the middle of the move.” They are trend followers and say that as if doing that is somehow easier. If price is already moving higher, for example, and you want to buy, where do you enter, where is your protective stop, and so on… I would argue that catching the middle of a move and making a consistent low risk living is harder than proper market timing. I am not suggesting the trend is not important. I just want to be in the market well before the trend is underway. Another thing I hear people say so often is this: “I wish I knew where the institutions were buying and selling.” Every time I hear this I say: “You can see where they are buying and selling, if you know what to look for.” It all comes down to support and resistance, just like buying and selling anything else in life.

Happy Trading !

- MASTERMIND