To complete the Trading Flow explanation we will consider one more important factor. You might know the stock market traders are divided into different groups. Most important are the professional institutional traders and the self-motivated retail traders. Institutional and other professional traders are usually associated with the big money and well known names such as Prudential, Merrill Lynch, Salomon Smith Barney etc. The rest are trading their own accounts or represent small trading boutiques.
We believe in the Smart Money Theory and that professional traders know much more about the overall picture of the company's stock and market in general than retail traders, who just use rumors on internet messages boards and mailing lists. The influence that they can render to the stock is rather significant. Thus the behavior of "big guys" is a subject of steadfast attention in our research.
It will be useful to understand the distinction of how the small orders of retail traders and the big block orders of professional traders are executed. While small orders in most cases can be executed immediately, big orders require an additional effort on the market maker's side. It is not necessary that big buy orders match the opposite big sell orders. In most cases big orders will be divided into small parts during the execution. Market makers should first collect enough shares to fill a buy order or sell by parts to fill a sell order. Then market makers write off the big order. It is common practice to discuss a contractual price and estimated terms and conditions before actual execution. Most likely it will be the ask price or higher for buy orders and the bid price or lower for sell orders.
That is why the study of the large orders (block trades) is so important. We use separate analyses of big and small orders to get a complete picture.
Now, that you know enough about the money flow, it's time for you to subscribe and start receiving our reports. Why? Because our services can be helpful to a wide variety of investors regardless of their experience, trading capital, investment style or temperament. Our service is the most sophisticated and inexpensive way to receive a complete picture of the single most influencing factor on stock movement, which is Money Flow.
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In the next part we will compare our approach and other classical methods.
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