Trading Starts with Supply and Demand
Summary
TLDRIn this discussion, Sam explains that a single set of trading principles applies across all asset classes and strategies, emphasizing the importance of market timing. He highlights how consistent profits stem from identifying supply and demand levels where prices turn, regardless of market conditions or news events. Sam argues that traders often misinterpret investing, reacting to news instead of focusing on core principles. He encourages investors to apply the same logic they use when buying everyday goods—buying low rather than waiting for good news or market uptrends.
Takeaways
- 💼 There's a belief that one single set of trading rules applies across all asset classes, strategies, and situations.
- 📉 The goal for all traders and investors is low-risk, consistent profits, regardless of asset class or timeframe.
- 🕰️ Market timing, especially identifying market turning points in advance, is key to success in any trading strategy.
- 📊 The core of trading strategy is understanding supply and demand in the market, as that drives price changes.
- 🔀 Strategies should remain consistent across different markets like stocks, futures, Forex, and options.
- 📰 News events, while impactful initially, tend to drive prices to levels where demand exceeds supply, often leading to strong rebounds.
- ❓ Traders often ask whether to pull their orders during major news events, but as long as their orders are placed at key levels, they should stay put.
- 📉 Big news events often lead to a quick price drop followed by a strong rally due to the lack of remaining sellers at lower price levels.
- 🧠 Investors are encouraged to rethink traditional strategies taught in books, as real-world trading behavior often contradicts this advice.
- 🏠 People tend to avoid overpaying for items in everyday life but do the opposite in markets—waiting for good news before buying stocks at higher prices.
Q & A
What is the main argument Sam presents regarding trading rules across different asset classes?
-Sam argues that despite the belief that different asset classes require different strategies, the same basic set of rules and principles apply across all asset classes. These rules focus on identifying market turning points and quantifying supply and demand.
How does Sam define the goal of all investors, regardless of strategy or asset class?
-Sam states that the primary goal of all investors is to achieve low-risk, consistent profits, which can be accomplished by following the same basic principles across different asset classes and timeframes.
Why does Sam emphasize market timing in his strategy?
-Market timing is crucial because it involves identifying market turning points with high accuracy. Sam believes that understanding where prices will turn is key to successful trading, regardless of the asset class.
How does Sam respond to the belief that the average person can't time the market effectively?
-Sam disagrees with the belief that the average person can't time the market. He argues that while the industry says this, it’s not true, as market timing is based on the quantifiable relationship between supply and demand.
How does Sam explain the impact of news events on market strategies?
-Sam believes that news events initially cause markets to drop due to panic selling. However, these events drive prices down to levels where demand exceeds supply, often resulting in strong rallies. Therefore, he advises against pulling orders from the market during news events.
Can you give an example of a news event that Sam mentions and how it affected the market?
-Sam mentions events like the British Petroleum oil spill and the London subway bombings. In these cases, markets initially dropped sharply, but then quickly rebounded as demand exceeded supply at lower price levels.
What analogy does Sam use to explain why people struggle to apply trading rules in the market?
-Sam compares trading to buying a house or car. People typically try to buy these items for the lowest price, but when it comes to the stock market, many wait for uptrends and good news, which often leads to buying at higher prices.
What mistake does Sam highlight that many investors make when following traditional investing advice?
-Sam points out that many investors follow conventional advice, waiting for good news and uptrends to invest, which contradicts how they would approach buying anything else in life. This leads to disappointment when they don’t see profits.
Why does Sam believe people struggle to make money in the market despite following traditional strategies?
-Sam argues that people struggle because they follow strategies based on theory rather than real-world practices. Traditional strategies often go against the basic principle of buying low and selling high, which leads to losses.
What is the core message Sam wants to convey to investors?
-Sam’s core message is that investors should focus on market timing and quantifying supply and demand, rather than following conventional advice. By doing so, they can make better decisions and achieve consistent profits.
Outlines
📈 The Universal Trading Rules
Sam discusses the common misconception that different asset classes and strategies require unique sets of rules. He argues that all investors, regardless of their approach or the assets they trade, are essentially seeking the same goal: low-risk, consistent profits. To achieve this, Sam emphasizes the importance of understanding market timing and turning points, which can be identified through real supply and demand analysis. This approach is applicable across asset classes such as stocks, futures, and Forex.
📰 Impact of News Events on Trading Strategy
Sam explains how major news events affect market behavior and addresses a common concern among traders about whether to pull their orders in response to these events. He advises that as long as trades are placed near key supply and demand levels, there is no need to remove them. Using examples such as the BP oil spill and the London subway bombing, Sam illustrates how markets often react to bad news with an initial decline, followed by strong rallies once prices hit demand levels where buyers outnumber sellers.
🤔 Rethinking Traditional Investment Advice
Sam encourages investors to forget much of what they’ve learned from traditional investment strategies, which often fail to generate profits. He points out that in everyday life, people don’t overpay for goods like houses or cars, yet they often buy stocks at higher prices during uptrends. He emphasizes that the key to successful investing lies in buying low and selling high, as one would do with any other purchase, and cautions against following outdated or conventional market advice.
💡 The Key to Smart Investing
Sam wraps up by reinforcing the importance of approaching the stock market with the same mindset used when buying any product in life. He argues that many people struggle with investing because they follow what they’ve been told to do or what they’ve read in books, but these methods often don’t work. Instead, investors should focus on buying when prices are low and selling when prices rise, just as they would when purchasing anything else of value.
🎥 Conclusion and Thank You
The discussion concludes with a thank you message to Sam for sharing his insights on trading strategies and market behavior. The video is part of the MoneyShow.com video network, which provides expert financial advice and trading tips.
Mindmap
Keywords
💡Trading Rules
💡Market Timing
💡Supply and Demand
💡Consistent Profits
💡Economic and Political Events
💡Limit Orders
💡Real-world Trading vs. Textbook Trading
💡Market Turning Points
💡Asset Class
💡Demand Levels
Highlights
There is one set of trading rules that applies to every investor, every situation, and every asset class.
Low-risk, consistent profits are the goal for everyone, regardless of the asset class or timeframe.
Market timing and identifying turning points in advance with high accuracy are crucial for success.
The basic rules of trading revolve around quantifying real supply and demand in the market.
These principles apply universally, whether for stocks, futures, Forex, or options.
Even during big news events, if orders are placed in the right areas, there is no need to pull them.
Bad news events cause an initial drop in the market, but they often lead to strong rallies.
News events like the British Petroleum disaster or the London subway bombing illustrate how demand levels drive strong market recoveries.
Price drops during bad news create opportunities where demand exceeds supply, resulting in price rebounds.
Understanding supply and demand at key price levels is a highly quantifiable process.
Many people invest contrary to how they would normally buy things in their daily lives, leading to poor decisions.
Investors often wait for uptrends or good news, instead of buying when assets are 'on sale' or undervalued.
Following traditional advice or textbook strategies often doesn't yield profits, which confuses many investors.
The focus should be on making money by buying and selling in the same way people do in their everyday purchases.
Sam advocates for a more practical, real-world approach to trading, rather than relying on theoretical models.
Transcripts
we're talking about trading rules with
Sam side now Sam is there one single set
of rules that applies to every investor
every situation every asset class see I
would say there is I mean a lo I know a
lot of people say well different asset
classes different strategies and
different strategies for this and for
that but the end of the day what
everybody is in search of our low-risk
consistent profits and so whatever asset
class we're talking about whatever
timeframe we're talking about short-term
traders longer-term investor's I would
argue that it's it's the same basic
rules and principles that you need to
apply and and it really comes down to
market timing you know identify market
turning points in advance with a very
high degree of accuracy again another
thing the industry says you know the
average person can't do while the
industry is doing it but so you know 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 economic
political how do these affect the
strategy I had a question the other day
from someone saying you know when a big
news event comes out a big number comes
out should I pull my orders from the
market I pulled my limit orders from the
market and and my answer was you know as
long as you're got your orders in the
right area these levels that we're
talking about I would say no you know
think of any big news event think of
Japan think of any big news event you
could possibly think of and these are
all bad news events the British
Petroleum mess when they bomb the
subways and in London years ago you know
each time a bad news event like that
comes out what happens is the markets
initially drop big because everybody you
know the you know the mass is out there
hear that news and they push the sell
button what happens is that drives
prices down to levels where demand
exceeds supply right down to demand
levels and as soon as that happens
prices hit that level and and that's why
you see such strong
rallies every big news event you could
think of yeah the initial move was down
but the big ferocious move was up and
you think well how can that happen well
it's because you have no more sellers
left at a price level we're willing to
man exceeds willing supply and again
that's very quantifiable if you look at
the if you look at all this through the
you know real-world way of doing it
versus you know again the book version
so 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 tell them
focus on how you make money buying and
selling anything in your life you know
you would when you 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
for 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 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 you know
scratching their heads they say well I'm
doing what I was told to do what I'm
doing following what the books say but
I'm not making any money there's a
reason you know come back to again how
you make money buying and selling
anything well thanks so much for this
advice today Sam thank you this is the
money show calm video network
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