Institutional Trading

Learn about Institutional Trading and how you can gain an edge using our Institutional Pattern indicator. 

How to track institutional footprints?

 

Institutions are hedge funds, funds, banks, pensions, insurance companies, etc. that are responsible for managing tens, if not hundreds of billions of dollars. These firms account for over 75% of all volume. Their positions move the market, not retailer traders (You and I). Executing large volumes in any market will impact the current and future price moves. Institutions are part of driving strong trends. It then makes sense to follow their footprints and even better buy and sell before they do. 

Let’s get a better understanding of how this works and how we can utilize it in our own trading.

First of all, institutions have access to enormous resources/information/insights and talent that no other trader ever will come close to having. Hence they have a big advantage over the crowd. Their research budget and the ability to attract the brightest minds from all over the world make them always ten steps ahead in finding new ways to make a profit from the market. They simply have the power and knowledge to create strategies and execution models that can move an entire market. We just have to accept that fact and embrace it into our own trading.

Let’s talk about their trading strategies.

I myself have worked at a fund and know what’s going on under the hood.

I know and have seen it myself, some strategies are very simple in terms of the rational rules that the strategy follows. It can be easy and well-defined concepts that we all know about, what’s makes a big difference is the way the strategy is executed. When we talk about executing large volumes new aspects come into play that totally takes a simple base strategy into a complex and sophisticated algorithm.

The cost of carrying out their business: Imagine the cost of making thousands of transactions with large volumes? Hence there is a big advantage to come up with executing- models that aim to execute trades as cheaply as possible. So trading firms/institutions spend enormous resources in forecasting the future volume, future price moves, and their own impact on the market. All these factors together will determine when and at what price they will buy or sell according to their base strategy.

In addition, the firms do not want to expose their trading strategies, so the challenge is to act/execute so that it is not visible how they think. To execute large business volumes without them being too clear to other players is a big challenge.

So on top of their base strategy, institutions have models that determine when and at what price they actually can execute trades, combined with models that only focus on hiding their impact. Since, once again, it’s very challenging to execute large volumes in a market without having an impact. If a strategy has a clear impact on the market, the strategy itself can be traced and detected by other firms.

Important to understand!

3 aspects that institutions care about

#Strategy

The base strategy can be simple in terms of what concepts and mathematical models they use. It can be well-known indicators and methods.

#How to Execute Trades

Executing large volumes in a market can take time and involves many aspects, such as current and future volume/liquidity/volatility, etc. They forecast these aspects in order to know when the algorithm has a high likelihood to get the price they want without moving the market too much.

#How to Hide the Impact

A pressing concern is that their strategy shall be exposed by other firms since it can be difficult to completely hide their impact. So they have models that estimate and forecast when and to what price their impact is as low as possible. High liquidity and volatility is a key measure.

They seek liquidity

However, even though they try to do what they can to hide their strategies, their size and large positions can take weeks or even months to accumulate, therefore, it becomes almost impossible for them to fully hide their tracks. Fortunately, this makes it possible to identify what they are buying, well before they are finished accumulating a position.

Why does it take so long for them to accumulate/distribute a position? naturally, they can only buy/sell large volumes when the market allows them to. They have to find spots where they have access to high liquidity. High liquidity allows them to hide their tracks better. Since they can buy/sell at a price zone without moving the market too much.

Institutional Pattern

They seek liquidity

However, even though they try to do what they can to hide their strategies, their size and large positions can take weeks or even months to accumulate, therefore, it becomes almost impossible for them to fully hide their tracks. Fortunately, this makes it possible to identify what they are buying, well before they are finished accumulating a position.

Why does it take so long for them to accumulate/distribute a position? naturally, they can only buy/sell large volumes when the market allows them to. They have to find spots where they have access to high liquidity. High liquidity allows them to hide their tracks better. Since they can buy/sell at a price zone without moving the market too much.

Apply the knowledge

With this knowledge about how institutions function we can ourselves try to find these areas where we have liquidity runs, large volume spikes, and accumulation/distribution around market zones.

What we traders can do is to watch the market, analyzing where liquidity runs have taken place, and where large volume has occurred. Draw market levels based on where the price has made significant price moves from and try to come up with scenarios of what may happen in these areas in the future. Remember that it takes a very long time for institutions to accumulate a full position so we don’t have to stress about entering our positions, rather analyze and watch what the market does and then act accordingly. 

Make sure you have a good understanding of Strong Trends and how you can identify the start and end of trends. 

Institutional trading

How to apply the knowledge above

Institutional Pattern indicator

How to use our Institutional Pattern indicator to find areas where Institutions accumulate and distribute large positions.

institutional trading strategies

How to apply the knowledge above

Institutional Pattern indicator

How to use our Institutional Pattern indicator to find areas where Institutions accumulate and distribute large positions. Use our Institutional Trading Strategy!

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