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Someone vaguely explained a trading strategy where a trader monitors the probability of large volume buy or sell by large investment institutions like Berkshire Hathaway.

The idea is that such institutions who maintain an index usually buy or sell certain stock in certain number of times each quarter or every year. Once they buy or sell, it creates a temporary bull or bear.

The trader who knows about this strategy decides based on following facts:

  • They buy large volume of stock A ~3 times every quarter
  • It is the last week of the quarter and they bought the stock only once in this quarter
  • There is a good chance they will buy a large volume of the stock this week, so the price will go up (temporary bull)

What is the name of this strategy and where can I read more about it? If I know the name, I can search and find out more details.

Bob Baerker
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Allan Xu
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  • Honestly, who sell you this https://en.wikipedia.org/wiki/Snake_oil – mootmoot Jul 04 '19 at 16:17
  • Can I buy two snake oils and one bridge please? – Bob Baerker Jul 04 '19 at 16:52
  • Allan - welcome to Money.SE. I highly recommend you Take the Tour and see the kind of questions that are on topic and well received here. Unfortunately, not all down votes get a comment on the reason why. If this strategy has a name (other than "follow the smart/big money") I'm sure you'll see an answer appear. – JTP - Apologise to Monica Jul 04 '19 at 17:13
  • Thank you, @JoeTaxpayer. I probably phrased this question that it might look goofy, but I have indications that it is working well for three people. I am noticing some large volume buy or sell in specific stocks. I know there are datasets the tells the name of the broker who bought or sold. I was expecting this could be a well-known strategy to seasoned day traders. – Allan Xu Jul 04 '19 at 17:50
  • @mootmoot, I suggest you give a question the benefit of the doubt before jumping to the downvoting gun. – Allan Xu Jul 04 '19 at 22:49
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    Are you sure the mentioned pattern is not some sort of hindsight? Whether it is observed by yourself or some financial report, you must be very careful not falling into the illusion of validity. – mootmoot Jul 05 '19 at 15:54
  • @mootmoot, I don't know. The idea is to extract a pattern of how often a fund manager buys or sells a specific symbol. A trader must be able to simulate and validate the pattern within multiple periods in the past several years. Is that hindsight? Asking since I am not an expert. – Allan Xu Jul 05 '19 at 20:20
  • @AllanXu Statistically, if you simply use a random generator to pick up date, does it resemble the pattern closely ? – mootmoot Jul 05 '19 at 22:52

2 Answers2

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This is called front-running -- getting "in front" of someone else's upcoming trade to benefit from its effect on the market. Front running is legal if the upcoming buying/selling is known or predicted based on public information (e.g., index rebalancing), but in this case it's likely ineffective because you can't react faster than the professional traders who are also front-running. It's illegal if based on non-public information.

nanoman
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The basic mechanics of trade execution and the level of knowledge of professional market participants essentially guarantee that your "strategy" will leave you with empty pockets. In trading, the sort of bet you want to make is called "trading a binary event" - statistically, a long-term losing proposition for even the best-informed traders. If you don't know exactly what you're doing, the loss term becomes much shorter.

First, nobody is going to simply dump a huge order into the market for everyone to see, for exactly the reason that you describe. Why in the world would they raise the price on themselves when they want to buy, or drive the market down when they want to sell? Orders are split into small pieces and sent - possibly to a variety of exchanges via arbitrarily-delayed routing - through routing brokers in order to avoid giving away that kind of information.

Second, and much more important: neither you nor anyone outside that institution has any idea which side they're going to take today. They can, and do, buy and hold for years - especially in highly-liquid, high-volume instruments - and sell when the price reaches the level they want. They also accumulate slowly and essentially unnoticeably. You cannot and will not front-run the big boys; they spend very large amounts of money to ensure that you can't.

The absolutely solid, incontrovertible fact of the market (and this offends technical traders to the core of their souls) is that no one knows what it's going to do. As an active options trader, being able to predict even a penny's worth of movement in a specific direction at a specific time would be worth unlimited amounts of money to me. And you want to do this in stock? Against institutions, which hire the best financial and statistical brains on the planet?

I suggest you re-think the premise behind your bet - and moreover, that you re-think the assumptions behind the desire to make this kind of bets. If you indulge it, it will leave you broke and keep you so.

bluewater_sailor
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    An iceberg order is used to achieve what you described. A large order is divided into smaller limit orders, hiding the size of the actual order. Iceberg, meaning that just the tip of the iceberg is seen. – Bob Baerker Jul 07 '19 at 19:33
  • @BobBaerker - right, that's standard practice. But I was mostly thinking of dark pools, which account for better than 50% of all US equity trading volume these days... and that's a very conservative estimate. – bluewater_sailor Jul 08 '19 at 16:12