≈ Follow the Elephants≈
The Wall Street jungle hosts a variety of animals. Retail traders like you and me are the flies. We’re small, quick, and make little impact on the shape of the forest. Institutions are the elephants. They’re massive, slow, and can move darn near anything they want. Many a distracted fly has been smashed by their heavy footsteps.
You don’t always know where they’re going ahead of time. But once they show up, everybody knows it. This is one of the advantages of technical analysis. Charts reveal elephants’ footprints in the volume indicator.
Low volume days are those dominated by flies. High volume days are those dominated by elephants. The former is noise; the latter is signal.
We’ll talk more about the difference between up days and down days with high volume in our next few messages. For today, let’s make sure you understand what an “institution” is.
Think of them as big money. Usually they are stewards of capital, not individuals. Mutual funds, hedge funds, pension funds, endowments, and banks all qualify as institutions. These are firms that manage billions, and sometimes trillions of dollars.
Tomorrow, we’ll show how to identify if the elephants are buying or selling.
Chart of the Day
The VolumeAvg Indicator
ThinkorSwim has an indicator called “VolumeAvg.” By default, it plots the 50-day moving average of volume as a line. When a volume bar goes above the line, it’s officially a “high volume” day.
Video of the Day
Onboarding with Coach Frank
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