Who really makes money in the financial markets?

The short answer…Wall Street Institutions! They have size, experience, and understand Price Action and Order Flow. So why do most people have no idea how to get consistent results? Because they do what Wall Street says and not what Wall Street does…

There are two main groups of participants in the financial markets.

Institutions, which include major market firms, banks, and many hedge funds.

The other group is us…the independent retail traders.

Which of these two groups do you believe has more money to trade? It’s Goldman Sachs versus your next-door neighbor?  Trading data from brokerage firms show that the average independent retail trader buys shares of stock in small, odd lot sizes.  An odd lot would be 33 shares, 62 shares, 14 shares, you get the point.

Institutions trade in large, round lot sizes…10,000 shares, 30,000 shares, 100,000 shares, and higher.  So, the question is this: Do large institutional trades drive market price or small individual trades?  If you answered large institutional trades, you are correct.

Let’s go a bit further.

Do institutions like to buy stock at full, high retail prices or wholesale prices?  Wholesale prices of course.

However, these same institutions encourage individuals to buy closer to retail prices.  Why?  They need someone to sell to.  When a stock drops significantly what is the action that individuals take?  Individuals sell stock afraid of further losses.  What action do institutions take?

They buy when stocks drop significantly.

They buy stocks on sale while individual traders are trained to wait for stock to go up for a while as a confirmation signal to buy.  This leads to the conclusion that institutions tend to buy when individuals are selling, and institutions tend to sell when individuals are buying.

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