Original subtitles

Hey guys in this module we're going to be covering the different players and how are you going to trade

against different participants. In the last module,

we've talked about the book and how orders affect prices.

So let me ask you this.

Imagine you knew what other people wanted to do.

Right.

It would have been easier for you to predict where the stock market is going to go.

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So again with the same example that we've covered in the previous model imagine there's 10 people and you

know that one of these people is somebody who owns, and you can look at the notes from that module,

there was a participant that owned 40,000 shares out of the company that had 75,000 shares of float.

So he owned a majority of the shares.

Imagine that you could have known that this person wanted to sell some of these shares.

You would know that the price might drop because such a big player who has so much shares if he wants

to sell,

we've seen that prices are going to fluctuate because of his order.

If he sends and order to sell, prices will fall.

Now different players trade differently and this is something you have to understand.

A mutual fund, or somebody who has a lot of shares is not going to trade like somebody who is just

sitting at home,

a retail trader. Again, the same thing in poker or in different sports and different sectors, different

participants participate differently.

So in this situation if you knew that that person has a big mutual fund, has 40,000 shares what could

you know? You could know that as a mutual fund or a big institution he's going to try and sell his shares

when there's a good news because that's the only time he's going to be able to unload so many shares.

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He can't sell shares when the stock is going down because he'll just make the stock tumble.

So he has wait when there is it good news for there to be enough buyers

so he can sell them those shares and unload his shares.

So if you knew that somebody was a big mutual fund and he wants all the shares you might sell in

front of him.

And if there's a good news that come out, you're not going to buy right away because you know that there's the

seller. And this is why a lot of times you're going to see a stock that has very good news and then it's

going to drop 10%

And people aren't going to understand

Why? The news is good.

Why did it drop?

Well maybe because a big mutual fund wanted to sell it's shares and they are known to sell on good news.

So it wouldn't have been....

Wouldn't it be helpful for you to have known that this specific stock has a lot of institutional ownership?

Has a lot of mutual funds and hedge fund ownership?

Yeah it would have.

And this is information that's publicly available but it never me ceases to

amaze me how many people don't know about it.

And some people might tell me "Well I have this stock" and I ask them "What's the institutional ownership on that?"

"I don't know."

Well how can you not know? You're trading the stock wouldn't you want to know who you're trading against?

Because at the end of the day trading is a zero sum game and what it means is for every dollar that

you put in your pocket, it came out of somebody else's pocket.

So you want to know who you're playing against

Because that's the person you're taking money from.

Same thing in poker if you will play at poker and you're at the top level of poker players,

you're extremely experienced.

At this top level

what do you think differentiates these players?

They all know how to calculate probability.

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They can they can calculate the same odds of how much they can win or lose, they're all as good as

playing their turn or their hand depending on what position they're playing.

So when they're going to play at that high level they study the other players that are going to be playing against.

What's their style?

Do they bluff a lot?

How do they play?

How do they call? So that way they have every advantage they can have.

Same thing in sports if you're get into the finals and how you're playing against a team you're not

just practicing to be a good basketball player at that level in the championship, you're going to practice

specifically for that team because they play in that particular way.

Same thing in stocks.

Prices are going to move because of the buy orders and sell orders that people are sending or the participants

are sending.

So you got to know who are those participants because they're going to send orders in a different type

of manner.

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So that being said for every stock that you're going to trade you want to know what is the institutional

ownership on that stock.

Is there a lot of institutions that own that stock? Like Facebook has 70% or higher or does it

have no institutional ownership?

So there's a lot of things that have zero institutional ownership.

So it's all retail floats, all retail people who are buying it. And stocks trade differently for... or

strategies work differently for stocks that have high institutions and stocks that have low institutions.

Low institutions, retail are easily likely to explode in a direction or another because on good news

retail are just buying, they're not going to offload on good news.

And for different reasons which we'll cover in more specifics in another module.

But keep in mind this is something that you're always going to have to watch out for, the players that

you're playing against. Now really quickly.

Who are the different players?

First off you have proprietary trading firms, which is like us, now proprietary trading firms are

smart. They're considered smart money they know what the're doing.

So they're trying to take advantage of small inefficiencies in the market and get in and get out quickly.

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So these guys have a lot of tools and information and access and commissions and fees.

So they're very competitive.

Another type of players are investors. Now investors they just come in and buy stocks and they

keep them for a while.

OK so they're not trading they're putting in money and leaving it for a longer period.

You have your retail traders. Now retail traders are traders who trade from home who don't have a lot of sophisticated

tools or information or strategies. Now for these people that's considered dumb money because it's easy

money to make.

So as a trader or as a professional trader, somebody who does this in a smart manner,

you want stocks that have a lot of retail flow because again you're getting money from somebody so

you want to play against people who aren't as smart as you.

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Portfolio Manager which are mutual funds. So these are big funds. A mutual fund is a big

fund that people put money in and has a portfolio manager the portfolio manager oversees those funds

and buys and sells stock

with those funds. So it could be hundreds of millions of dollars following a prospectus that the clients agreed

on.

So you know he might say I'm putting 20% in financial stocks 20% in gold stocks and he's

going to fall back and but he's going to pick and choose the stocks that he thinks will make you the most

money.

Mutual funds haven't been performing very well in the past.

They actually perform worse than ETF. And we'll cover ETF in more detail in another

module but if you just put your money in the markets you'll actually outperform mutual funds.

And the reason for that is because mutual funds the portfolio manager takes a manager expense ratio

so he takes a fee every year about 2%.

And this kind of adds up it takes away from the money you get.

And he doesn't actually do well enough to beat the market.

So mutual funds aren't really good

put money in.

You're better off taking the time to select your stocks

even if you're an investor. But it is one of the big players because mutual funds are going to buy a

lot of shares in a company and when they sell they sell lot of shares.

So you're going to have to know about that and you can know which mutual fund has which stocks

in their holdings.

And you can know how they're going to trade those stocks just by knowing that they have it because it

is known that when mutual funds have a stock that's been performing very well,

they're going to try and remove money from that stock to take some money off the table, take some profits

off the table and put it in something that's still undervalued and that's not overvalued anymore.

So we can guess what other players are going to do.

And by guessing what other players are going to do we can guess what the stock is going to do. Becasuse at the end

of the day

you're not trying to guess where the stock is going to go.

You're trying to guess what other people are going to do because what other people are going to do is

what's going to drive the stock to go in that or this direction.

So don't try and predict "Is that not a good company is this stock not a good company."

What you want to do is try to predict

how are other people evaluating that stock? Because of that evaluation that's what's going to drive their

orders

and because there are orders that's what's going to drive prices.

So you want to know what other people are going to do from now on and in the future.

Other type of player is the hedge funds. Hedge funds are very smart money they're like mutual funds, big

capital, not anybody can put money in a hedge fund.

So you have to be somebody who's rich enough because there's very strict minimums and hedge funds can

do more than mutual funds so they can go long or go short which we're going to cover

And another module will go in for this.

So hedge funds can do all of that.

They're way more sophisticated than mutual funds, they're smarter,

they tend to make more returns and they're very very discrete.

So we can't really know what positions they have up until several months after so when it's

too late.

So hedge funds we can't really know about.

But these are the top players.

And for every stock that you're going to trade from now and every strategy you're going to look

at institutional ownership and base your strategy on that.

So this is going to conclude this module and I'll see you guys next one.