Stocks

Footprints of the Big Boys

BrandonWendell
Brandon Wendell
Instructor, CMT

When we are trying to learn a new skill, we usually try to copy the actions of someone who is already successful in that field.  When it comes to making money in the markets, we can easily see that the institutional traders are the big winners on a consistent basis.  Online Trading Academy teaches their students how to identify where those institutional traders make their money and how to follow them for their own trading success.

One of the things that we will look for is the area where institutions have pushed prices higher or lower with high velocity due to a large order.  When placing these orders, these institutions know that they may not get all of their orders filled at once.  They are looking to receive an average price in a zone that is acceptable for their goals with that investment.  This is known as working the order.

Imagine that I am working an order for several hundred thousand shares for a mutual fund.  They decided they wanted to invest in XYZ stock due to its potential to rise on their good management, good product, past track record, new products, etc.  I identify that a good price for this stock is in the $40 to $41 range.  I will start to place orders when price gets into that range.

There is a problem though.  I cannot place the order for the entire amount all at once.  If I were to show that much demand in the market, most astute traders would jump in front of me and buy knowing I will support price with my demand.  This would drive prices higher and prevent me from getting my stock in the desired price range.  So I have to be smart and buy in pieces with smaller orders that seem innocuous.

What happens if the price zone I selected happens to be a great buying price?  This would mean that I am buying in an area where there is a lack of sellers since prices dropped so fast that they either dumped their supply or they are holding on, hoping that prices will return to lessen their losses.

When I step in with my demand, I find a lack of supply to fill my buy orders.  This is going to cause me to have to raise my bid for shares quickly and dramatically so that I can get those shares.  This is going to cause a large green candle at an area where I was trying to buy.  As a retail trader, this is a signal of a demand zone for me.

Going back to the institutional trader, they were unlikely to fill all of their orders to buy shares when prices moved up as quickly as they did.  So there are still latent (unfilled) orders sitting in the demand zone they created.  Since they likely programmed a computer to do the buying for them in that zone, there is no emotion involved.  The computer will not chase price or become impatient.  The computer waits for prices to return to the demand (specified entry) zone to buy again.

This is where traders should pounce.  Once the institutions have shown their hand on the charts by forming the origin of the demand zone, we have an opportunity to buy in the same zone as prices return to it.  We can see from past behavior that the supply is lacking in the zone and someone is supporting the price.  Those latent orders are likely to cause another bounce in price that we can benefit from.

Trading is simply a game of identifying the order placement locations of the institutional traders.  In Online Trading Academy’s Professional Trader Course, we teach you how to properly identify these demand zones as well as the proper supply zones that cause prices to drop quickly.  Come join the tens of thousands of graduates who have discovered the correct way to trade the markets.

Disclaimer
This newsletter is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results. Reprints allowed for private reading only, for all else, please obtain permission.