A popular market breadth indicator, the McClellan oscillator is one of the tools that MoneyShow's To...
It All Starts with Supply and Demand
11/28/2011 11:55 am EST
Trader and educator Sam Seiden believes that trading simply comes down to quantifying supply and demand and tells how to develop a winning strategy using this basic idea as the foundation.
We’re talking about trading rules with Sam Seiden. Sam, is there one single set of rules that applies to every investor, every situation, every asset class?
I would say there is. I know a lot of people say “Different asset classes, different strategies,” but at the end of the day, what everybody is in search of are low-risk, consistent profits.
Whatever asset class we’re talking about, whatever time frame we’re talking about—be it short-term daytraders or longer-term investors—I would argue that it’s the same basic rules and principles that need to apply.
It really comes down to market timing; identifying market turning points in advance with a very high degree of accuracy.
Again, another thing the industry says the average person can’t do, while the industry’s doing it. It comes down to a basic set of rules that allows you to quantify real supply and demand in the market, because that’s where prices turn in any market, whether we’re talking about stocks, futures, forex, options; it’s going to be the same basic strategy.
Now do news events, economics, and politics affect the strategy?
I had a question the other day from someone saying, “When a big news event comes out, or a big number comes out, should I pull my orders from the market?” My answer was as long as you’ve got your orders in the right areas— these levels that we’re talking about—I would say no.
Think of any big news event, think of Japan, think of…the British petroleum mess, when they bombed the subways in London years ago, each time a bad news event comes out, what happens is the markets initially drop big because the masses hear that news and they push the sell button. That drives prices down to levels where demand exceeds supply, down to demand levels.
As soon as that happens, prices hit that level and that’s why you see such strong rallies. For every big (bad) news event you could think of, yeah, the initial move was down, but the big, ferocious move was up.
You think “Well, how can that happen?” It’s because you have no more sellers left at a price level where willing demand exceeds willing supply. Again, that’s very quantifiable if you look at all this through the real world way of doing it versus the book version.
In a sense, you’re coaching your clients to forget a lot of what they may have learned in the past about investing.
Yeah, and what’s ironic is telling them to focus on how you make money buying and selling anything in your life.
When you buy a house or a car, do you ever offer more than the asking price? Of course not, nobody would do that. Then why is it then when people put their hard-earned money at risk in the market, they don’t want to buy the stock when it’s cheap and on sale; they want to wait for the good earnings, the uptrend, you know, all the good news to come out.
Again, it’s an opposite way of doing it, and that’s why people end up scratching their heads. They say “Well, I’m doing what I was told to do and I’m following what the books say, but I’m not making any money.” There’s a reason. Come back to how you make money buying and selling anything.
Related Articles on TRADING
While fundamentalists delve into economic and financial data to analyze the market, technicians emp...
Being able to determine market direction is a trader’s most important skill, writes Markus He...
Markus Heitkoetter discusses reward/risk ratios and winning percentage, and why determining the dir...