The Smart Money & Crowd Behavior in the Markets

What is meant by the term resistance in the context of market mechanics? When an investors starts to sell as soon as a rally starts. This is floating supply and has to be removed, if not this is bad news for higher prices. In order to have higher prices, the floating supply must be removed. When an up-move does take place, then the rest of the traders, just like sheep are inclined to follow. As human beings, we are free to act however we see fit, but when presented with danger or opportunity, most people act with surprising predictability. This is normally referred to as ‘herd instinct’.

This is exactly what smart money looks for to make a huge profit. The smart money are predators’ and the retail investors are uninformed and are symbolic of ‘the lamb to the slaughter’. Think about this carefully, human behavior does not change and this process will always be present in the financial markets. Be mindful of herd instinct. There are only two main principles at work in the stock market, which will cause a market to turn. Both of these principles will arrive in varying intensities producing larger or smaller moves.

smart money pani investors

Herd Panics after Substantial Falls

The ‘herd’ will panic after observing substantial falls in a market (usually on bad news) and will usually follow its instinct to sell. As a trader who is aware of crowd psychology, you must ask yourself, “Are the trading syndicates and market-makers prepared to absorb the panic selling at these price levels?” If they are, then this is a good sign that indicates market strength.

Herd Rush in & Buy after Substantial Up-Moves

After substantial rises, the ‘herd’ will become annoyed at missing the up-move and will rush in and buy, usually on good news. This includes traders who already have long positions, and want more. At this stage, you need to ask yourself, “Are the trading syndicates selling into the buying?” If so, then this is a severe sign of weakness.

Are the Odds Against You?

Does this mean that the dice are always loaded against you when you enter the market? Are you destined always to be manipulated? Well, yes and no. A professional trader isolates himself from the ‘herd’ and becomes a predator rather than a victim. He understands and recognizes the principles that drive the markets and refuses to be misled by good or bad news, tips, advice, brokers, or well-meaning friends. When the market is being shaken out by bad news, he is in there buying. When the ‘herd’ is buying and the news is good, he is looking to sell.

trading in the shadow of the smart money

In “Trading in the Shadow of the Smart Money” Gavin discusses why market manipulation is actually a good thing for traders and investors who can read the chart correctly based on universal laws. All markets work because they are governed by three universal laws, which are the law of supply and demand, the law of cause and effect, and the law of effort versus result. To make money in life there is a fourth and very important law, the law of attraction, and for the first time in any book on trading that we are aware of Gavin unlocks the key to success in trading and investing in the markets: BELIEF in your human ability to make money and in your system to read charts. The book gives actual trade setups taught to Gavin by Tom Williams and gives over 50 annotated color charts explaining the VSA principles bar by bar.

You are entering a business that has attracted some of the sharpest minds around. All you have to do is watch the footprints that they leave, in the way of volume, and trade in harmony with them. Trading with smart money requires a means to determine the balance of supply and demand for an instrument, in terms of professional interest, or lack of interest, in it. If you can buy when the professionals are buying (accumulating or re-accumulating) and sell when the professionals are selling (distributing or re-distributing) and you do not try to buck the system you are following, you can be as successful as anybody else can in the market. Indeed, you stand the chance of being considerably more successful than most!