Remember the movie with Alec Baldwin? It’s about the exploits of the Shadow, a crime-fighting vigilante with psychic powers. The Shadow has “the power to cloud men’s minds so they cannot see him.” In the world of trading, there are two kinds of investors, regardless of whether you are day trading or night trading: institutional traders and retail traders. Unfortunately, institutional traders “cloud” the investments (and the minds) of retail traders.
Institutional traders comprise the larger hedge funds, the mutual funds, and as of late, the high frequency trading (HFT) robot funds. They are the big players. They have cash. With cash, they are king. They dictate the market’s direction, up or down. The HFT’s can getin and getout in just a few seconds, “cloudying” investment waters even more. The retail customers (smaller, invidual investors), on the other hand, have limited cash resources. They want to make a nice living, trading a handful of contracts or small number of shares, entering and exiting positions based upon some trading system or trading strategies they have concocted.
Lets see how the waters can get cloudied. Retail customers use standard technical indicators for their trades, moving averages, stochastics, bollinger bands, etc. They know when to enter and exit their trades because these indicators give them “signals”. But institutional traders do not use the same tools as smaller investors. They create their own algorithms based on parameters that the smaller investor is not privy to. The HFT’s for instance, can actually co-locate their trading computers inside the exchange, making their executions faster than anyone else’s. A smaller investor does not have the cash to pay the exchange for the right to co-locate. Sure its “evil,” sure its unfair, but get with the program — those are the facts of life as we know it today.
With cash, institutional customers can change Market direction instantly. Retail customers sit, watching the moving averages direction, showing the price to be uptrending. Suddenly, as if from nowhere, boom, institutional customers come along and change the market direction, almost on a dime, by selling volume shares or contracts. Almost instantly price changes from uptrending to downtrending, leaving retail customers in the dust, their heads spinning, trying to pick up the pieces of their stopped out trades. Talk about clouded minds? And then the poor retail customers try and figure out what they missed from their technical indicators. How often does this happen? Can you say every 7 to 10 minutes?
Does this mean retail customers can’t trade, they can’t make a living? No. It just means retail customers must get smart. They must learn the tricks that the institutional traders use. They must outsmart, outwit, outlast, out-conive, basically out-trade the big boys, playing the big boys game. They need to become the Shadow, getting in and getting out right behind the institutions. Look, it is clear you can’t lick them, so join them.
Smaller investors beware. Quit getting clouded by the institutions. Become a Shadow and trade in the footsteps of the institutions.
Barbara Cohen CIO, Shadowtraders, and professional day trader, specializes in teaching students how they can be trading futures with their own trading system and trading strategies. Ms. Cohen has helped hundreds of traders achieve their goals trading. Find out if trading futures is for you by attending one of Ms. Cohen’s Free Webinars. Check out my Futures Trading Articles. For more information, send an email to email@example.com or call 866-617-2037 today.