Traders Trade Secrets – Intro

Traders Trade Secrets

Introduction — Why Ask Why?

 

Welcome to the real world of trading.  Behind the curtain.

It’s about the ‘trade secrets” of professional traders. Every industry has it’s ‘trade secrets” — the tips known by insiders but commonly kept out of the public spotlight — and the Financial Services industry is no different.

Based on over two decades of consulting for many companies serving individual traders, the editors at SteadyTrader are in a unique position to know many of these “insider” rules. And we’ve created this website, SteadyTrader.com, to help you understand those trade secrets and ground rules so that you can get a better understanding of how to approach your personal trading in ways that help you meet your goals.

So, to get started on your education, let’s begin with some good news.

The Stock Market is the greatest “wealth creation engine” ever seen in the known world.  Every day, wealth is literally “created” out of (seeming) “thin air”.  Actually this wealth is created as a result of the most conservative and basic economics — the rule of “supply and demand”.  Very simply as the “demand” for any give stock goes up, it’s price rises.  And this “demand” is constantly changing due to a myriad of forces.

Remember this when you buy stock.  You are not buying shares in the company.  You are buying symbols of the “demand” for or “popularity” of that company.  That demand is measured by the Order Book, which shows the number of “bids” (buy orders) and “asks” (sell orders). The price of your shares is directly tied to the amount and number of “Bids” in the Order Book on the market for that stock.  If there are more Bids than Asks, there is pressure for the price to rise.  More Asks than Bids, the pressure is for the price to drop. Period.

NOTHING ELSE DIRECTLY AFFECTS STOCK PRICES.

Only the ratios & prices of Buy Orders and Sell Orders in the Order Book affects price movement.  This is after all an auction, remember.  That’s why it’s called a market (like real estate).  No company or agency is setting the prices of these products (stocks).

“Demand” is an ever-present absolute fact of human existence. We are all creatures who “want” and “desire”.  Yet demand is a fickle thing.  And this is why the “super rich” work the Stock Market so extensively.  Because you can shift what you own instantly, on the fly, as cycles of demand change.  (And they always will!)

This brings us to the second lesson or “trade secret”.  The first is to always and forever keep top-of-mind that you are buying chits of “demand”.  The implicit follow-up is  that you should never become attached to any particular company’s stock.  Since the stock value is merely the result of the world’s most important “popularity contest” — don’t let yourself be fooled into thinking you really know why a stock is “in demand”.   And always maintain complete emotional detachment for any stock — no mater how much you may have won or lost on it in the past.

Traders – – and especially professional traders — talk a lot about the ‘herd mentality” because that’s what we do.  We follow the herd.  When the herd moves, stocks rise (or fall).  Does any one really know why the herd moves?  Which gnat bit which steer that bumped into its neighbor and started a run?

Or you may prefer the old fable about the massive typhoon that destroyed a city. After it was over, a child asked it’s father, where did this terrible wind come from. And the father’s answer is that a butterfly flapped it’s wings on an island halfway around the world,  2 years ago … and one thing led to another and another  — until a typhoon was born.

Which is why professional traders stay completely detached from their holdings.  Because they know that there is no “why”.  There is no intrinsic “fundamental value” to a share of stock. There is only the herd and it’s movement.  They move to graze on this stock or that stock.  The herd occasionally stampedes away from some other stock. Like the leopard waiting to pounce, we watch and study this movement.  But we never try to pretend we know why it moves.

“Why” is the question a 5-year-old asks their parents for about 18 months. Why this? Why that? “Why is the sky blue?”  “Why is water wet?” That is the ‘great seduction” of so many phony “systems” and “strategies”. They sell their promises of “knowing why” to people with a childish yearning to know “why”.

Sounds simple, but this is an extremely important lesson. “Knowing why” is something we all try to do. It’s human nature.  In the case of stock prices, “knowing why” is an exercise in foolish pride.  We pretend to be “stock analysts” and feed this fantasy by devouring story after story in the financial media.  And the media is happy to feed our fantasies by running these stories incessantly, as if they are anything more than that — just stories.  But the media do not care if you are learning anything of value, or if they are even reporting facts.  They just want to lure your “eyeballs” back every day so they can sell their advertising.

The myth of “fundamental analysis” is dying hard.  Do you know any real stock analysts?  If you do, they are retired.  In a world where 80% of the volume is made up of high-frequency trades trigger by computer algorithms — where are the fundamentals?  In a world where 80% of the volume is traded on private markets and “dark pools” that we can’t access — where are the fundamentals?

Fundamentals have faded to the world of myth.  They are the “why” like the tooth fairy is the “why” to a 5-year-old who loses a tooth.  Except they are dangerous.

But their is more good news here.  The other questions.  Who, What, When, Where… the traditional “news reporter” questions.

  • Who (which stock)
  • What (shows a measurable potential to move)
  • Where (up or down)
  • When ( in the next week, or day, or 5-minutes — but always in the short-term)

These questions can be answered with greater accuracy than ever before.  (And — spoiler alert — is has to do with the rapid progress in computers, data, and mathematical analysis all in an environment of “instantaneous” communication”).

At SteadyTrader, and in this series in particular, you will learn what is possible and what is not in the ongoing effort to “ride the herd” to your advantage.  And “knowing why” is beyond what individual traders can do.  So, please do yourself a favor, and stop asking “why”.  Focus on the “who, what, where, when”… and get busy trading!

Free eBook

Get the book that started it all. Read-This-First: Before You Buy Stock contains the no-nonsense research and insights that shines a spotlight of truth on how the market really works… gives individual traders the WHAT YOU NEED TO KNOW to trade successfully.

It’s what professional traders all know, and what the so-called “financial media” NEVER talk about.

TRADE BUY THE NUMBERS
Every business manager — from the corner car wash to the corner office of a multinational corporation — has a spreadsheet budget model. And it’s been like this since 1990. If are trading any type of “system” without such a model — that is just reckless…

Why? Because a spreadsheet budget model allows you to plug in the kinds of results you are REALLY getting from your system — and it will show you how that will affect your own trading P&L.

If you don’t have such a model, you are simply believing the “cherry picked” examples on the advertising for your system. Hello?!? You actually believe the advertising? Or the salesman? We call that just plain stupid, and if you disagree, please leave this site immediately. SteadyTrader.com can’t help you. What you are looking for is a leprechaun with a pot of gold.

Now, not everyone is a spreadsheet jockey, so we built one for you. We call it the SST (Strategy Stress Tester). All you need to do is plug in YOUR NUMBERS. Like how many trades you take each month. What is your winning percent, etc. There are actually 8 CRUCIAL VARIABLES. like these.

And no, you can’t do this on the back of a napkin or on a calculator.

TRACK SOME TRADES

Take a look at the SteadyTrader system. We call it Green Light — because it gives you a “green light” on fast moving stocks and ETFs. It won’t take long. Our signals pop the next day on moves that last 1-5 days. It’s about making quick profits — and taking them BEFORE the market takes them back (which is inevitable).