Objective Rule Based Trading

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Sam Seiden

19 Nov, 2007

in Technical Analysis and 1 more

Does your trading lack the "trader's edge" needed to be a consistent winner in the markets? Do you find yourself entering and exiting positions at the very wrong time? If the answer is yes, you're not alone. The good news is that there is a very specific reason why the majority of traders enter and exit trades with very poor timing. Also, the answers needed to fix this problem are far simpler than you may think. To gain the edge and learn how to stack the odds in our favor, we will go back to the school of basics, not just to review the basic concepts but more importantly to look at them very differently than we have before. We know that if we look at charts, indicators, and any other tools used to perform market analysis the same way everybody else does, we would just be entering and exiting positions with them as well which gives us little to no edge. To gain the consistent edge which means low risk/high reward entries, we must first have a solid understanding of why most traders fail. Second, realize that moves in the markets are driven by mass psychology and the pure laws of supply and demand. Third, know how to properly identify and utilize support (demand) and resistance (supply). Finally, we need to be able to see what this looks like on a chart and also have an objective and mechanical set of criteria for execution.

Today, I was teaching a class in Houston Texas. It's now day six of the seven day class and for me, day six is always my favorite. The reason it's my favorite day of the class is because this is when I can really see the students trading the markets the way I have been teaching them all week. They tend to do well on days four and five but by day six, most are trading very well and having a blast doing it. While it's fun to trade and make money, by day six, they realize they have been taught the rules for obtaining consistent low risk/high reward profits forever, not just a strategy that will work in certain market environments, and break down in others. They understand now that when you have a solid understanding of pure supply and demand coupled with objective and mechanical rules for analyzing a chart and trading, you are able to perform the same in any and all markets, and market environments. As I mentioned before, most people lose consistently in trading. There are two groups of consistent losers and it's important that you get to know them well. I will explain why in a minute. The first group is the group who has never been educated in trading. This group tends to make buy and sell decisions based on emotion. The second group are the people who have been thoroughly educated, the wrong way. This group is in much worse shape than the first group because they are walking east and west trying to find the North Pole and don't even know it. They don't know it because they are following the rules they were given and likely paid for so how can the education be wrong? It must work! Think again… The problem is that the foundation of their strategy and training is fraught with lagging indicators and oscillators that only increase risk, traditional chart patterns that are better served with a frame around them on your wall, and tons of illusions given to them by those who have more to gain by obscuring reality. Let's go back to school and re-learn some basic concepts you may have already been taught, the wrong way. The reason I said that you had better get to know the consistent loser very well is because these people are the ones who provide income for the consistently profitable trader. Let's explore this by looking at three trades taken today by students in my class trading real Online Trading Academy money, using objective rules based on the laws and principles of supply (resistance) and demand (support).

This student sold short at the circled area. The trading platform inserts the little green line at the entry price. The student inserted the blue lines to identify the objective supply (resistance) level. As price was rising for shares of ADBE, my student was waiting for price to come up to his level so that he could sell short. He only wanted to short at his predetermined level for the following reason… This reason is the key to a proper foundation when buying and selling anything. It's the difference between consistent profits and consistent losses. When price came up to his supply level, he sold short to the buyer who was buying AFTER an advance in price and at a price level where SUPPLY EXCEEDED DEMAND. The laws of supply and demand ensure that the buyer of anything who takes this action will lose consistently. The student who made this day trade gladly sold to this ill-informed buyer. Shorting at the turn in price means your risk is very low and your reward is very high. The longer you wait to short from the level, the higher the risk and lower the reward.

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Do you find yourself entering and exiting positions at the very wrong time? If the answer is yes, you're not alone. The good news is that there is a very specific reason why the majority of traders enter and exit trades with very poor timing.

Just looking for confirmation why this market timing does not work , why this strategy may offer an alternative.

Jun 25, 2017

Member (3626 posts)

thanks

this helps alot but only concern is how you figure where the supply and demand lines are put?

Aug 06, 2014

Member (3 posts)

A relief to read an article that discusses supply & demand without turning to some fancy indicator. This is really what it's all about, buyers vs sellers. Excellent article.

Sep 03, 2008

Member (6655 posts)

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