Discover New Trading Insights While On Vacation

2007-06-13 Word Count: 745 Category: Finance

Everyday life has a way of revealing a better understanding of your most puzzling problems. Early on in my stock trading career, I wrestled with producing consistent profits. So much that, I decided to get away for a while and clear my head. I decided to visit New York City. The mental frustration of losing my initial capital was taking its toll. All of this will make more sense soon enough, so just bear with me.

New York is an incredible city. There are people everywhere you look. I grew up in an urban area but I had never experienced anything quite like this. All five of your senses immediately come to life. As I walked, more like zigzagged, down the street I could here the faint sounds of music playing off in the distance. I absolutely love music, especially live shows performances. I was curious so I followed my ear. The closer I got to the source of the music, the more I noticed how many other people were moving in the same direction. We were all being funneled down the sidewalk. A smaller number of people were moving against the tide.

The volume and clarity of the music increased with every step I took, as was the size of the crowd . Eventually, I arrived at the source of all the excitement. A live band was performing and hundreds had gathered for the free concert. Im not very tall, so I couldn't see a thing! I recall saying, I should have gotten here earlier. The light bulb in my head shattered into a thousand pieces! Stock trading manna had fallen from the sky. This was the breakthrough I had so desperately needed.

Stock trading is a lot like the concert in New York . The band represents, in this case, institutional buying. In essence, the party starts with them. Next, there is the audience and those moving in the direction of the music source. This group consists of traders, investors, speculators, and gamblers. And lastly, there are those going in the opposite direction of the crowd. You will be shocked as to why they are leaving . Below is a break down of each groups role starting with:

1. The Band

The band is the reason for every major stock price movement . They are the proverbial big fish in the game. Following their lead will undoubtedly fatten your profit margins. Institutional buying and selling of gigantic blocks of stock greatly affects volume. Keep a watchful eye on the band because they perform many unannounced shows. Their influence on the stock market is inarguable.

2. The Audience

This group of traders, investors, speculators, and gamblers comes in waves once the band begins to perform. Some of the most clever audience members are there as the band sets up the stage (hint, hint). When the band begins to play, those within earshot of the music come from blocks around intensifying the vibe in the air. The bandwagon effect is now in full swing. I arrived late to the party and missed most of the performance (upward stock price movement). Getting to the show early will pay off.

3. The Party Poopers

This last group is completely in tune with the band. While hoards of people are flocking towards the musical performance, the party poopers are quietly leaving the scene. Why would they be leaving now? The answer is in the question! Party Poopers exit at the climax of the show. In other words, they are banking their profits. Who are these contrarians ? You have already been introduced to them earlier in this article. These are the same folks who watched the band set up, enjoyed front row seating for most of the performance, and were seen headed in the opposite direction while we were still trying to find the party. Surprise.

I gained a better understanding of my flaws as a trader while taking a hiatus than when I was in the trenches. As a trader, your comprehension of misunderstood trading principles often occurs when you least expect it. We sometimes need a real world example to make sense of it all. This example spans a period of only one day. In reality, this process can take shape over several days and even weeks in the market. Remember this story the next time you come across a rapidly moving stock. Resist the temptation and find another party that's just getting started. Be a party pooper.