Identifying and trading along with institutional money moves works for all asset classes: Stocks, Commodities, Currencies, and Treasuries. In this article, we focus on stocks.
Who are institutional investors and what is their core focus?
Table 1: Key Institutional Investors
Table-1 shows: “Prop Traders” also act as “Liquidity Providers”: On one hand, some institutions trade their own money and on the other hand, they are providing liquidity. Hence, if a core “Prop Trading Company” wants to accumulate or dispose stocks, they have to bypass their key competitors. Even so, they try to hide their actions, the other market forces spot what is going on and trade along with it – and you can do the same.
Graphic 1: GOOG – Spot Institutional Money Moves
Table 2: Spot Institutional Money Moves
The highlighted trade situations on the chart identify that:
Price consolidation is going hand in hand with decreasing volumes.
Price expansions to the up- or downside is going hand in hand with increasing or collapsing volume.
Putting it all together provides you a chart-based strategy to trade right at the highlighted instances:
With the direction of the price range breakout.
With the Gap.
With a Strong Directional Candle.
Graphic-2: AAPL Trading Institutional Price Moves
Over the years, we developed multiple indicators and studies, which highlight institutional price moves by spelling out potential trade entries and exits. For an example, please check: http://www.neverlosstrading.com/Top_Line.html
After we clarified when to initiate a trade, the next question is which stocks to trade?
To follow institutional price moves, pick stocks which are widely held by multiple institutions. When you select the S&P 100 and the NASDAQ 100, you already found the core of the trading opportunities. Each of those stocks is held in most mutual funds and by multiple institutional investors.
The next challenge is to find trading opportunities. We developed special scanning programs; however, you can find tradable stocks by picking those with a stronger price move than the referring index:
For the S&P 100 choose OEX.
For the NASDAQ 100 choose QQQ.
Stocks to trade are those with an above or below the comparison index price-moves. With the NeverLossTrading mentorships, students will receive daily reports on trading opportunities. If you want to be part of some specific reports, please sign up with our free report link…click here.
To be a successful private investor, the skills and experience for being able to make money when the markets go up and down is essential.
When a major price move occurs, expect to trade one direction for no more than 10 trading days and after that expect a reversal. If you want to catch a longer trend trade, trail your stop:
To the upside: Below the low of the prior candle.
To the downside: Above the high of the prior candle.
Why is an institutional follower strategy successful?
Private investors have the advantage of speed: They can enter and exit entire positions, while Institutions need a longer time to get in and out of a position by sheer size and SEC (Security Exchange Commission) regulations.
By the smaller size, you have an easier way to leverage and hedge trading positions.
With a short- rather than long-term strategy, money can be made on up- or down-moves.
Short-term trading allows for constantly generating and compounding interest, which gives you accelerating returns.
With modern technology on hand and competitive commissions, the private investor can access all markets real time, similar to institutions.