How to Trade Like an Institutional Trader

Focus: STRATEGIES

Sam Seiden Image Sam Seiden Chief Education, Products and Services Officer, Online Trading Academy

Sam Seiden shares why most retail traders are trying to make money the wrong way and how you can trade like an institution.

My guest today is Sam Seiden from Online Trading Academy and we're talking about why retail traders probably shouldn't trade like retail traders and to trade like institutions instead.  Sam, how is it different?  How do retail traders trade differently than institutions?

Yeah, I started on the institutional side of the business and after a few years, kind of transferred over to the retail side and when you do, that was like 17, 18 years ago and still today at the Expos and everything else, you see people are just, there's this big game going on and they don't know the rules of the game and most people don't even know that there's a game being played.  People that are trading or investing and not successful, maybe they're losing, maybe they're not losing but they're not making any money, the reason is because they're thinking and trading like a retail trader. 

We try to do, when I try to talk about it at the events and Online Trading Academy, is you need to stop, get out of that world, and start thinking and trading like an institution and coming from the trading floor, the Chicago Mercantile Exchange, you see that both groups actually do the opposite.  When institutions are aggressively buying, retail's aggressively selling and vice versa so what we do is kind of just map that out on a price chart, and there are some mistakes that retail traders make, there are some obvious ones.

Let's talk about that because I know that retail traders are trained a certain way to think about the markets and it sounds like that's probably the wrong way to think about it. 

Yeah, I mean the way you make money buying anything, you buy at wholesale prices and sell at retail prices.  That's what an institution does, that's what we do, but think about the average, let's go very broad.  Think about the average investor around the world.  What do they do?  They buy stocks, right? 

They buy high and sell low.

Yeah, I mean they're conditioned from such a young age and they don't even realize how strong the conditioning is.  Make sure it's a good company with healthy, strong management and a healthy balance sheet and good earnings and make sure the stock is in a nice healthy uptrend.  Well when all those things are true, where do you think the price of the stock is, wholesale levels or retail levels?  It's almost at or near retail prices.  Retail's buying, institution's selling.

So the retail market would say, though, that that's because we don't have the information that the institutions have.  They have some secret sauce that they know about that we don't and that's why they have that edge. 

Yeah, and that could not be further from the truth.  What the big thing that people miss is what people don't realize, and this should be like their foundation.