Today's Quote: “A man can't be too careful in the choice of his enemies” Oscar Wilde.

There are several good books out there about trading that should be on every trader’s must read list. If you were forced to choose one and only one, the only possible pick would be “Tools and Tactics for the Master Day Trader”. We are going to run a series of excerpts from the best selling book for the next series of lessons. Now in the words of the master trader himself, Oliver L. Velez…

SECRET 02: SOMEONE'S ON THE OTHER SIDE OF YOUR TRADE, AND IT'S NOT YOUR FRIEND

I have always believed it necessary for our students to understand that each time they place a trade, there is someone on the other side of that transaction betting in the opposite direction. For instance, each time you buy a stock, there is someone on the other side of the trade selling it to you. The $64,000 question is "Who's smarter?" Who is right, you, or the person on the other side? Far too many traders and investors operate in the market as if they buy and sell stock from some large warehouse in the sky in which piles of the securities they want have been stacked and stored. This vague and erroneous concept ignores the most crucial element of trading and fosters an incorrect state of mind. Trading must always be viewed as a battle, a battle first and foremost with the self, but also a battle against other market players. As a trader, you must always be aware that with each trade, you are pitting yourself against the opinions and beliefs of other traders and investors, and they could very well be the ones who are right. As a trader, it is imperative to understand that you are only able to buy a stock because someone else is anxious to sell it. Conversely, you are only able to sell your stock at a certain price because someone is anxious to buy it at that price. In order to be the party who's right more often than not, you will first have to fully understand what successful trading is. This may sound simple enough, but you will be surprised to find that many traders do not know it. We have asked the question, "What is successful trading" to thousands of people across the country at our 1- and today trading seminars. And each time we have, we've gotten the typical answers like, "successful trading is buying low and selling high," and "successful trading is winning more then losing." While both of these statements contain some truth, they fall far short of the real answer, mainly because they are vague and eliminate the personal element we've spoken of earlier. In order to approach the game of trading in the proper mind-set, you must know the answer to this simple question. So, let us reveal the right answer here and now, before we delve deeper into the subject matter. Successful trading is buying merchandise (stock) from someone who is selling it too cheaply, and selling that merchandise back to him or someone else when you know it to be too expensive. Reread this statement several times, before moving on, for it contains one of the most important keys to trading mastery. If you understand it properly, you will realize that, essentially, successful trading is the art of finding and taking advantage of a fool, someone totally unaware of the current value of the merchandise in or at hand. This is the truest definition of successful trading, and those who approach each trade with it in mind will be playing the game with a deeper and keener insight. The problem with other definitions of successful trading is that they miss the most valuable point. In every winning trade, someone must be the patsy, the idiot, the fool who gives up the merchandise to someone else too cheaply, and buys it back too expensively. Our job is to make sure you and our students are not the fools.

MASTER TRADER TIP

Master traders in many ways play the role of the Good Samaritan. They relieve the downtrodden by buying stock from them when they are in pain, and satisfy those who are anxious by selling their stock to them when they get greedy. In a sense, master traders are relievers of pain and satisfiers of greed.