Day Trading Strategy: Fade the Dumb Money -- with David Moadel
welcome to looking at the markets with David Modell I wanted to give you a day
trading strategy that's pretty simple and it's something you can do within the
first hour of the trading day so let me give you a couple of terms I want to
talk about smart money versus dumb money I know that's not a very nice sounding
term but that's what people call it that's the term okay so you got your
smart money which is big institutional investors hedge funds alright they have
a lot of capital a lot of money they have the ability to move markets
sometimes and they are much more informed than your retail trader and
retail traders I hate to say it but they're called the dumb money alright
I'm not saying that retail traders are dumb that's just a term that people use
and the dumb money quote-unquote dumb money is yeah your retail traders who
are at a disadvantage they don't have a lot of capital usually compared to hedge
funds they don't have algorithms and expensive computer programs and also the
smart money the institutional investors they get the news first they get
information and data first oftentimes they might have a Bloomberg terminal
then they might be paying $30,000 a year for this software program that will give
them the news before everybody else gets it so the institutional investors the
smart money they have access to not only a lot of capital but they usually get
the news first by the time the retail traders wake up in the morning and look
at the news on their phone or on the internet wherever they think it's new
but it's really old news compared to the institutional investors all right and so
that I guess that's why they're called the dumb money it's not a very nice term
but there you go all right so what you can do is you can fade the dumb money
and buy fade I mean when you see the price action on the chart
you bet in the other direction that's called fading a move betting it's going
to go it's going to turn around and go the other way
all right so let's take a look at some examples and you'll see what I'm talking
about and this is something that's best done when there's more movement more
volatility which tends to occur in the first hour of the trading day from 9:30
a.m. to 10:30 a.m. Eastern Standard Time Mondays through Fridays when the markets
are open for that first hour all right so this is Yahoo Finance and it is a
line chart of this one is Citigroup Citigroup the bank stock ticker symbol
see and you can see where the action is happening it's in that first hour of the
day from 9:30 to 10:30 okay approximately it's not an exact science
I'm talking about approximately the first hour of the day you can see where
most of the movement happened and then for the rest of the day it was just kind
of flat all right that's typical and so you probably want to do this in the
first hour of the day and what do you do you wait for the dumb money the the
retail traders who are getting the news last to make their move they all pile in
in that first half you know the first the first big move during the first hour
of the trading day oftentimes is the dumb money the retail traders who think
they're being clever they think they're getting the news first they think that
they're jumping on the news first when they're not ok and meanwhile the smart
money is waiting they're waiting to pounce on it all right and they're gonna
fade that move that's typical and it's all happening when most of the
volatility is happening which is the first hour of the day all right so you
got that first move watch for that first move by the dumb money the people who
are just kind of piling on and they're gonna oftentimes bid it up and you know
goes up and then more dumb money comes in because they see that it's going up
and they think oh this is the move it's going to go this way all day long and
all the amateur day traders get in and then the institutional investors the
hedge funds who have a lot more money and a lot more power to push the price
however they want to push it they fade that move and you can do it too when you
can see that move is starting to peter out when
starting to sputter you can get in all right now you probably won't have a
stoploss if you're a day trader I definitely recommend limiting your risk
you can do that with a stop loss or however you want to do it okay
you don't want to have unlimited risk if you're going to do something like this
all right and then you see it start to Peter out and look what happened not
only during the first hour of the day which is a great time to do this but if
you had held on for the rest of the day just down down down
okay the institutional investors have the power they have a lot more money
than retail traders and they get that news first they saw the news long before
you did believe me okay that's Citigroup stock let's look at B B B Y that is Bed
Bath & Beyond stock right there ticker symbol B BBY and you can see where most
of the volatility is happening where most of the big moves the biggest moves
are happening again that first hour of the day alright so what was that first
move and by the way where's a lot of the volume in that first hour of the day
first first hour and also that last hour you can see the volume bars have a lot
but if you noticed in in city and in Bed Bath and Beyond where is most of the
actual movement happening that first first hour of the day all right that's
typical doesn't always happen like that so you got that first move the dumb
money coming in okay thinking they're thinking they're gonna beat everybody
else to the punch right and then here comes the okay you see that move
starting to sputter out and then go in the other direction you can get in
alright if you want to with a stop loss I recommend if you're a day trader the
smart money comes in and fades the move and you can ride on the back so that
smart money just kind of ride their coattails all right all the way up
nice huh okay let's look at another one this is canopy canopy growth Corp
alright there it is CGC alright again where's most of the movement of the day
it is in that first hour in this case in the first half hour
mostly alright you got that first move the dumb money and then started a
sputter peter out and going the other direction and the institutional
investors have a lot more money to push it down and down and down those are just
three examples from today I took these all just from one day there are a lot
more examples out there it doesn't always happen like this and you have to
make your own decisions alright don't do anything just because
you heard somebody saying it's a good idea you want to research it yourself
but this is one idea to fade the dumb money especially if you see the move
starting to go in the other direction just like we did here you saw that move
start to sputter out and turn around not a bad time to take a position if you
want to and if you want some more help with these things my name is David
Modell and my email address is David Modell at gmail.com I help people put
together trading and investing plans and I give ideas like this alright things
that you can use actionable ideas you can email me anytime if you like this
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like this alright thanks a lot I appreciate it and I'll talk to you again
soon