The big money that moves the stock market is called institutional order flow.
In order for market to stay healthy, it needs to go up and down. It should not stay in one trajectory up or down. That is not healthy for the stock market.
Let me ask you something from, let’s call it a layman’s perspective. Asking you (Marian) as somebody who worked for Goldman Sachs or somebody who saw the institutional side of the market.
Most small fries like myself would never see that side of the market unless they had access to somebody.
What does that mean that it’s healthy for the market to need a pullback?
The way we make money is with institutional participation. We do not make money on our own with all of us little traders. We can’t move a market. We are not the big fish in the ocean, just little ones taking little bites even if it’s just $1000 per day.
That’s a tiny, minuscule part of the overall stock market.
What we need to do is hop on the back of the institutions. If the institutions only bought and never sold, we wouldn’t have a market. You wouldn’t see any market action. Not only that, but there becomes valuation in stocks. So the institutions know where the value point is and they get out. And they wait for the pullback.
This is how the market works. What we need to do is recognize when it’s pulling back, and when they get out of stocks. We get out too and wait for them to get back in, and we get back in with them.
How Institutional Order Flow Moves the Stock Market
If there is buying pressure in a stock, let’s call that buyer the institutions. When the stock pulls back; is the institution who created that uptrend with demand, simply letting up on the buying pressure to allow the pullback to happen?
I think they are doing two things. Depending on what type of fund it is, a stock will reach a valuation point and the institution will exit the position. They are getting out and not buying anymore they are waiting for the valuation to pull back. So now they are stepping back. They are getting out and waiting for a better valuation to buy again.
We keep harping on watch the volume, watch the volume, we probably sound like a broken record. But if you’re a smart trader, volume, can tell you volumes!
Volume can tell you so much information. It can tell you who is participating. And we only want to be involved when institutions are participating, and active. Because we want to be riding on their coattails. If the volume is low its caution. Day trade only, get in get out.
We joke around about being a broken record but there are certain things that are fundamental to trading success.
Today’s trading podcast discusses how to spot institutional activity and why it’s so important to only trade when they are active.