"How" and "Where" does Smart Money trade?

#1
Dear members,

My overall goal is to figure out what are the drivers of an intraday set-up failure. Within this over-arching question, I have 3-4 sub-questions. But, for now, I just want to pose one of those questions:

How/where does smart money (i.e. Institutional Investors, etc.) trade?

As of now I am able to only get the following answer:
  • Smart Money mostly trades at VWAP (from Andrew Aziz's book)
  • Smart Money trades sometimes during pre-open (e.g. if they have some overnight information)
  • I am not sure if Smart money also trades after 3:15 or post-market
The reason I am posing this question is: I believe that understanding how and where key players operate is crucial.

Your experience will benefit me a lot, and I hope I will be also able to add value to this forum by my inquisitiveness.

Thanks!
Saurabh

P.S. I was unable to find a similar question having been already raised on this forum. I used the search function..
 
#2
I was able to find 2 more situations, so adding these to the list:

How/where does smart money (i.e. Institutional Investors, etc.) trade?
  1. Smart Money mostly trades at VWAP (from Andrew Aziz's book)
  2. Smart Money trades sometimes during pre-open (e.g. if they have some overnight information)
  3. I am not sure if Smart money also trades after 3:15 or post-market
  4. During Accumulation or Distribution (to have low impact cost). See HDFC Bank chart below. Perhaps under Acc or Dist
Screenshot 2021-01-16 at 7.58.16 PM.png
 

travi

Well-Known Member
#3
Dear members,

My overall goal is to figure out what are the drivers of an intraday set-up failure. Within this over-arching question, I have 3-4 sub-questions. But, for now, I just want to pose one of those questions:

How/where does smart money (i.e. Institutional Investors, etc.) trade?

As of now I am able to only get the following answer:
  • Smart Money mostly trades at VWAP (from Andrew Aziz's book)
  • Smart Money trades sometimes during pre-open (e.g. if they have some overnight information)
  • I am not sure if Smart money also trades after 3:15 or post-market
The reason I am posing this question is: I believe that understanding how and where key players operate is crucial.

Your experience will benefit me a lot, and I hope I will be also able to add value to this forum by my inquisitiveness.

Thanks!
Saurabh

P.S. I was unable to find a similar question having been already raised on this forum. I used the search function..
I'm surprised you did not mention volume. That's something you can read about.
 
#4
Thx Travi.

Per my current knowledge, Volume is an "effect" of their trading decisions. It does not "guide" their trading decisions. I could be wrong!

To make my need clearer: I am not asking: How can "we" spot Smart money's trades?

I am asking: How does "Smart money" decide when and where to trade?
 
Last edited:

travi

Well-Known Member
#5
Thx Travi.

Per my current knowledge, Volume is an "effect" of their trading decisions. It does not "guide" their trading decisions. I could be wrong!

To make my need clearer: I am not asking: How can "we" spot Smart money's trades?

I am asking: How does "Smart money" decide when and where to trade?
Smart money is not one entity, infact multiple big entities can also be on opposite sides and if one side is squeezed enough, it may relent adding more fuel to the direction.

Smart money also piggy backs, and the original decision may come from an insider or source or news/report or event.
all the decisions are then analyzed in various ways, man/machine/both.

Bcos its not one big entity, i dont see reason in writing a long post &
bcos even biggies have stoplosses, that tells us enough :)
 
#6
Thx again Travi. So what I gather from your reply is that: Smart money also trades based on: "insider or source or news/report or event."

Are there any other triggers that move them to trade? Note that I am NOT asking how they pick their direction, which could be different as you say. I am asking: What triggers them to make a move?

Also, your point that Smart money is not one entity is a valid one. Though I wonder if there are some commonalities in the "way" they trade? After all they all have "bigness" or "smartness" as a common context.

I really liked Andrew Aziz/Mike Bellafiore's VWAP commonality here, or even Wyckoff's Accumulation/Distribution commonality.

Are there more such commonalities I wonder?
 
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Pradeep Narayan

Well-Known Member
#7
As far as I know there is no such thing as Smart Money. There are few traders who have an information edge and they exploit that, but that does not qualify them to be 'Smart Money'. If there was such a thing as 'Smart Money' won't you find generations of rich traders? And again what do you think would be its trading rules:
a. What would be their R:R
b. What would be the criteria for entry and exit when dealing with large volumes - slippages etc.

In case you think they have a better RR and better win% - that does not make them 'Smart', it only showcases their competency which comes from experience.
The core skills required for trading are:
a. A strong mind
b. A mind that understands 'probabilities' in all aspects of life & adjusts according to circumstances
c. A mind that understands the laws of both Small and Large Numbers and knows how to use them in real life

Then you also need
a. Basic computer skills or phone skills to enter and exit orders
b. A good broker and trading platform
c. Sufficient capital

To answer your question in a different way... you don't necessarily need to know where the traffic snarls are there on your way to work or home, you just need to know how best to deal with them!
 

travi

Well-Known Member
#8
As far as I know there is no such thing as Smart Money. There are few traders who have an information edge and they exploit that, but that does not qualify them to be 'Smart Money'. If there was such a thing as 'Smart Money' won't you find generations of rich traders? And again what do you think would be its trading rules:
a. What would be their R:R
b. What would be the criteria for entry and exit when dealing with large volumes - slippages etc.

In case you think they have a better RR and better win% - that does not make them 'Smart', it only showcases their competency which comes from experience.
The core skills required for trading are:
a. A strong mind
b. A mind that understands 'probabilities' in all aspects of life & adjusts according to circumstances
c. A mind that understands the laws of both Small and Large Numbers and knows how to use them in real life

Then you also need
a. Basic computer skills or phone skills to enter and exit orders
b. A good broker and trading platform
c. Sufficient capital

To answer your question in a different way... you don't necessarily need to know where the traffic snarls are there on your way to work or home, you just need to know how best to deal with them!
By definition, Smart money simply means some entity( person/group/company etc ) that is profitable or consistently profitable or in some way net +ve and it also applies to other trades then Market Trading.
 
#9
Thanks Pradeep. I really like your analogy. You have well understood my basic need. So: Leave aside smart money. My core question then is: Who all could be the show-spoilers for retail traders? And how to tackle/avoid them?

And to your good analogy, my question then is: Would we not want to take the path of least resistance on our way to work/home? If we knew the snarls, we could take a different route to save time. Or we could even avoid travelling where and when elephants are prowling on the road.
 
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Pradeep Narayan

Well-Known Member
#10
Thanks Pradeep. I really like your analogy. You have well understood my basic need. So: Leave aside smart money. My core question then is: Who all could be the show-spoilers for retail traders? And how to tackle/avoid them?

And to your good analogy, my question then is: Would you not want to take the path of least resistance to you way to work/home? If you knew the snarls, you could take a different route to save time. Or you could even avoid travelling while elephants are prowling on the road.
When I was a younger trader, I used to blame Udyan Mukerjee, KEAT Terminal, NSE, my wife and even the lunar phase for me making losses and not trading well. You see, the only spoil sport is the jelly between your ears!
To become a good trader you need to follow the process of elimination... you should eliminate all that does NOT work for you in trading (not your wife of course :) )
You need to experience a set of indicators, explore various trading methods & try different styles. You would realize over time that some of these tools help you and most of them won't work for you. Let go of the ones that hinder you and focus on the ones that support you and refine the list.
This is a long process and a boring one and you need to complete this... else no Shaolin Temple on the 36th Chamber!

Your question on taking a different path, the one of least resistance... there is only one road and all you have is your car and and a set of CD's... you need to make the most of the situation! Depending on your nature you can choose to enjoy this ride or make it miserable. There are many things in life that one cannot change!
 

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