Trade Like A Pro

Written by Jacey Harmon
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Institutional investors are the driving force behind the market. Mutual funds, pension funds, banks, and insurance companies have a large influence over the market's direction. Their deep pocketbooks can ignite a rally in a stock or stop an entire market's advance. It pays to learn how to recognize institutional activity. Recognizing institutional activity in the stock market can influence your investment decisions across the board.

Paying attention to the stock market can help you determine what to do with not only your stock investments, but your bond and futures investments as well. This is because as the stock market drops, institutions tend to put money to work in the bond market. As money moves out of stocks and into bonds, bond prices and bond futures will rally. Stock futures are directly tied to the performance of the stock market, making it imperative for a stock futures trader to understand the stock market.

Identifying Institutional Activity

If you are trading stock index futures all you need to do is pay attention to the market's price and volume action. Keep a daily diary of the NYSE and NASDAQ volume as well as the price movements of the S&P 500, S&P 600 and NASDAQ composite. When you start to see the market consistently fall on heavier volume than the previous session it is a signal institutions are selling shares. When the market rises on consistently higher volume it signals institutions are buying shares.

Institutions can not hide their buying or selling. They leave their tracks in the form of volume. When you learn to recognize the relationship between price and volume you can begin to trade with the pros. All other indicators are secondary when compared to the market's price and volume action. Let the market be your guide and you will benefit from its guidance.


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