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Perception Versus Reality

Online Trading Academy
Wed Apr 02, 2014 10:24 EST

Have you ever felt the need to be on guard when buying a car, major appliance, new home, or anything that involves a sales person? Or, have you ever had a career in sales, which means spending weeks, if not months, in advanced training sessions where the entire goal of the training is to learn how to convince someone that he or she should pay $1,000 for something that is really worth $200. When you're the seller, it's almost like you're trained to speak in deceptive code. And once you master this new language, people you are selling to naturally over pay, which means profits for you. Trading is no different. The goal is to buy low and sell high, which is what I often write about with our supply and demand strategy. To buy low (at demand), however, someone needs be convinced that whatever you're buying is worth selling at that price. Conversely, when you sell high (at supply), someone needs to be convinced that what you are selling is worth buying at that high price (retail prices). The one who ends up on the right side of that equation and ends up consistently profitable is the one who can decipher "code" and understand the reality of the situation. Let me decipher some code for you here in hopes that it will have a positive impact on your financial life and on other aspects of your life.

1. Your broker tells you, "This is a good investment." Most of the time this really means that it's a better investment for the broker, who is actually selling you the stock out of company inventory. Think about it. The average person buys stocks. Wall Street's primary business is selling stocks. This is not to say all brokers are bad; there are some good ones. The point, rather, is this: Do your homework and make sure that you are buying low (at demand) with the opportunity to sell high. The next time anyone suggests that you should buy a stock, ask the person if he or she is buying it also.

2. You see an advertisement to open a Spot Forex account, and the ad says "Free Trading, No Commissions." While that sounds like free trading, it really means the broker gets paid in the spread, which is typically much more expensive than commissions. When you open an account, make sure you understand the spread and real cost of trading.

3. When price in a Forex market reaches a key supply level, meaning it is about to turn lower, have you noticed that the news is typically good and the spread widens? This creates the illusion and the perception that the trader should buy, when in fact, the smart money is selling. Have you noticed that the hardest trades to take emotionally often turn out to be the best trades? There is a reason why. The next time price reaches a supply zone in the FX market and the spread widens, understand that this is happening because it's a good level and the bank has to price in their profit with a wider spread. Hint: Good level plus wider spread typically equals strong opportunity.

4. When the bid on your level two screen is ten times the size of the offer and when the news is outstanding, yet price can't move higher, this really means that banks and institutions are selling and that price is likely just about to collapse. A bank, institution, or market maker is going to create a bullish picture or perception when they have a big sell order to fill. They need many retail buyers to fill a large sell order. It's not that an institution is bad or doing something wrong. The institution wants to sell, so it does what it can to convince people that whatever it is selling is worth buying at the price at which it wants to sell. Isn't this what almost any retail seller does in any market? Isn't this what Costco and Walmart do?

5. Your financial planner says, "Annuities are a smart investment for you." This again typically means they are a great investment for the investment planner.

This code is not limited to trading and investing. Let's decipher some more code.

6. When your wife asks, "Does this dress make me look heavy?" What that really means is "Tell me I look thin in this dress."

7. When your boyfriend says, "It's not you; it's me." It's really you.

8. For young readers, when your mom or dad asks, "Is today garbage day?" This really means, "Take out the garbage, now."

9. When you're driving to a restaurant with your husband and you ask him if he knows where he is going and he says, "Yes, I think so,", this really means that he has no idea.

Being able to decipher code in the markets and in life always gets you closer to the truth, which means more money in your pocket and healthier relationships. Learn to know the difference.

Editor's note: This story by Sam Seiden originally appeared on Online Trading Academy.

To read more from Online Trading Academy, see:,

Hammering a Lightbulb -- Don't Use the Wrong Trading Tools

How Not To Be a Great Forex Trader

Condors: Adjusting the Flight Plan
 
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