by Brandon Wendell, Online Trading Academy
When we trade, we need to think and act like the institutional traders who are consistently profitable, not like the novice traders who routinely make bad decisions that lead to their losing money in the markets.
Amateurs will usually chase price and tend to buy when they see new highs or panic sell after prices have dropped. This is ridiculous and no one can make money trading that way.
As an example of how absurd this action is, imagine walking into a car dealership and asking them to double the price before you buy. You would never think of doing something like that, so why should you buy stock after the prices have risen? We need to buy stock like we buy other things in our lives, we buy on sale.
Looking at the chart below, you can see exactly where the novice traders chased the new highs. Their chasing caused large green candles as they sought out shares from elusive sellers. Once novice traders were holding their shares, the professionals pushed prices lower to trigger the stops that those traders placed below their entries.
Once the novices were shaken out of the market, the professionals allowed prices to rise again. This triggered a new round of novice buying from those who were upset about being shaken out. You can see that once their presence was known due to another large green candle, the professionals repeated the process to again take their money!
When we include volume in the picture, you can see exactly when the novice traders jumped in.
The novice action of chasing price becomes more obvious in the following chart when you break the chart down into a one-minute time frame. You can see exactly where the flood of novice orders came in as they attempted to buy breakouts to new highs for fear of missing out on potential riches. Unfortunately for them, professionals with trained eyes observed this action and took advantage of it.
This occurs nearly every day on many stocks and even in other financial markets such as Futures and Forex. So, can you avoid being caught with the novice traders? You need to trade like the professionals and the institutions. To learn how to do that, come visit your local Online Trading Academy and be trained in our Core Strategy for trading the markets. Trading like the professionals will increase your chances for success!