The world of market speculating is made up of everyone from the active day trader to the longer-term investor. These individuals speculate in all kinds of markets and asset classes. There are people all around the globe pushing ‘buy’ and ‘sell’ buttons each day in hopes of achieving income and wealth. Never in history has there been so many books written on how to speculate in the markets. Each weekend in cities around the world, educational seminars are given on how to “get rich” from trading. With so much educational information on how to speculate out there, why is it that most people lose money? How can this be? The answer is twofold and is the focus of this piece. The first reason is that most of the books and seminars are loaded with conventional technical and fundamental analysis that tends to teach you how to buy and sell with everyone else (herd mentality). This method is high risk, low reward and low probability. Conventional technical analysis is based on pattern recognition that has people buying after price has rallied and offers buy and sell signals based on indicators and oscillators that always lag price meaning high risk buying and selling.

Conventional fundamental analysis offers buy signals only after good news is present and company numbers are solid. Where do you think the price of a stock is by the time this good news is offered to you? If you guessed high, you are almost always correct. Remember, the only way to be consistently profitable when buying and selling in markets is to have a strategy that has people buying after you buy, at higher prices than you paid and selling after you sell, at prices lower than you sold.

Conventional technical and fundamental analysis fail to help because the basic principles of these two ways of thinking ensure you will buy and sell with the herd when it is too late which means high risk with no edge. If proper market speculating were as easy as reading a book, wouldn't every librarian be a millionaire?

The second reason most people lose money in trading the global markets is really part of reason number one. Speculators tend to throw all simple logic out the window. When you go the dealership to buy a car, see the car you have your heart set on and see the price is $20,000. Do you go to the dealer and say, “I like this $20,000 car so much, I want to pay you $30,000 for it?” Of course, you don't do that. You likely offer $17,000 or something like that. In trading, most people wait for confirmation of higher prices and then buy which is the opposite of how they buy things outside of trading – this makes no sense.

I once had a gentleman attend my training program. I will never forget the day I met him and spoke to him about the program. He approached me and said he wanted to learn how to trade and join my program. I said, “Before we commit to this, let's have a conversation or two and make sure this is right for you.” You see, I always want to make sure whoever is coming into the training program has the best chance to succeed.

I do not want to waste their time or mine. My first question was, “What do you do for a living now?” He happened to own and run a pizza chain that he had recently sold. As soon as he said that, I knew he had the best chance at doing this because he already knew how to make money buying and selling. In fact, there was nothing about buying and selling in a market that I could teach him that he did not already know. I will explain this in a minute.

Our first lesson went like this… I asked him to tell me about his business. He explained that the whole business comes down to the price of cheese. I asked him three simple questions: 1) What is the average price of cheese? “Around $2.00 a pound,” he said. 2) If the cheese you buy is selling at $4.00 a pound, how much do you buy? He said, “As much as I need.” 3) If the cheese is selling at $1.00 a pound, how much do you buy? “As much as I can and store it,” he said. Then, I told him that he was already a great trader and that there was nothing I could teach him about trading that he did not already know. What I could teach him however is EXACLTY what this proper buying and selling looks like on a price chart. He was already buying and selling in a market properly, he just didn't know what that looked like on a price chart. This was an easy task for me because he already had the foundation of how you make money buying and selling down and had made plenty of money from it. The most important part of today's article for you to understand is this:

The more you can bring the mind set and rules that you use each day to purchase everyday items at the grocery store, appliance store, and so on into your market speculating, the better you will do. Do you ever use coupons to save some money? If you do, you already know how to buy at a low price. Take that same exact mind set and action into your trading world. The mass illusion is that proper trading is somehow different than how we buy things properly in everyday life.

Many so-called professionals like to complicate the process with smoke, mirrors, curtains and sleight of hand. They do this to trick you so that you will transfer some of your account into theirs without you realizing it. The key for you is to keep everything “real.” Use your simple logic filter to ensure that you will not lose some or all of your account to illusion.


This is an excerpt from September 2009 issue of Trader's Journal.