What Do Institutional Traders Think About TA?

I have watched this video a couple of times now. Facinating set of interviews with large hedge fund managers talking about how they think about retail traders and using TA to determine trades.

Some points from the video:

1. Always back test strategies to make sure they work in long term

2. Have a specific set of rules you always follow

3. Have an open mind when talking with other successful traders even if their method doesn’t match yours

4. Huge Institutions buy so large, they can’t just jump in the market. They need to create liquidity by making prices hit large areas of stop-losses and buying in at that point.

a. Be aware - a couple of these interviews indicated that Stop Hunting is a thing: (Investopedia: Stop-hunting is a strategy to force others in the market out of their positions by triggering stop-loss orders. This is done by driving the price of a security up or down to where a significant number of traders are expected to have set their stop-loss orders. The triggering of so many stop losses at once typically creates a lot of volatility, presenting an opportunity for investors who want to trade in this environment. )

5. The stop loss needs to be where it needs to be. Don’t artificially manufacture it to limit your risk. If you need to do that, then you were not entering at the right point.

6. Hedge funds use many factors on what to buy, and huge hedge funds do not use support and resistance for lack of liquidity. But smaller hedge funds will use it to make decisions on when to enter.

7. Only enter a trade If you are confident in it. There is no reason for a tight stop loss.

This video and some of these points are clearly for mid to long term retail investors using a lot of Fundamental Analysis, and not all of them apply to day traders.

https://youtu.be/f19bfHpCths?list=PLbQQDrS6E-GZcZG9qCERdKC7fE2xYU692

1 comment