How Traders Can Follow the “Smart” Money

The skill of chart reading can pay handsome dividends.

For over two decades, I have been trading the financial markets using a “techno-fundamental” approach. While my initial focus in the early years was purely on technical analysis (or chart reading), I soon learned the importance of incorporating fundamental analysis (or financial statement analysis) into my trading process over the years.

This approach combines “technical” analysis to help me know “when” to buy and “fundamental” analysis to help me know “what” to buy.

FREE VIDEO: Technical Analysis vs Fundamental Analysis

And while I strongly encourage all new traders to learn and use both forms of analysis, there is something to be said for developing the power of simple chart reading skills.

Put simply, technical analysis tracks three important metrics: Price, volume, and time.

(Image: Technical analysis tracks price, volume, and time)

By analyzing these metrics, you can gain a solid grasp of the current price action of an asset.

Here’s a simple guide to interpreting price and volume on a stock chart.

(Image: Price and Volume Analysis)

Over the years, I’ve often been asked why the skill of chart reading is so powerful.

The answer is simple: Because the “smart” money always shows up on the chart.

So, who is this so-called “smart” money?

By “smart” money, I am referring to institutional investors who buy or sell stocks in very large quantities and typically base their transactions on sound, reasoned analysis.

These investors, including hedge funds and mutual funds, have the resources and connections to thoroughly investigate a company and can determine with a high degree of confidence whether the company is on the right track in areas such as earnings, debt, and growth.

Institutional investors also have the ability to analyze economies on a large scale and make forecasts about the direction of interest rates, government regulations, currencies, and more.

Because institutional investors trade in such large quantities, their actions often show up on the charts, and therefore, when you use technical analysis, you are essentially able to analyze what the smart money is doing.

Not a bad strategy!

Of course, the introduction of dark pool liquidity has complicated life for the average trader by hiding some trading volume on private exchanges. But this has not entirely eliminated the value of basic chart reading skills.

My advice to those who are eager to become better traders is to spend time learning to read charts. (We have many helpful resources for our members on our coaching video archive, our stock trading basics page, and many of our member courses.)

During this week’s live coaching call, I spent much of the hour sharing how to analyze monthly charts for fun and profit! We examined dozens of stocks, ETFs, commodities, and cryptos in this new video. Gold and Platinum members can watch the full replay here. (The specific teaching on chart reading begins around the 20-minute mark.)

And if you want ongoing coaching and mentoring along with cutting-edge investment research on stocks, ETFs, commodities, cryptocurrencies, real estate, and more, then check out our membership plans/pricing here.

Happy trading/investing!

Comments are closed.