How Smart Money Moves the Market (And How You Can Follow It)
- FinancialWisdom
- 6 days ago
- 7 min read
✅ Learn how to trade with smart money — not against it.
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Video Transcript Below:
What if I told you that the biggest market moves aren’t random? They’re driven by a select group of investors—hedge funds, institutions, and market makers—who have access to the best data and deepest pockets. This is what is often referred to as Smart Money.
But here’s the good news—you don’t need millions to follow their moves. Today, we discuss how to track smart money activity and use it for profitable trades.
If you’re new to the channel don’t forget to check out our growing library of stock market content, we condense what are often complex subjects and present them in an easier to understand format. With over 30 years of market experience, I know what works and would love for you to join more than 250,000 others in our community.
That being said, let’s dive in.
Before we start tracking them, we need to understand who and what smart money is, how they operate, and how they move prices.
Smart money refers to market participants who have deep pockets, advanced data, and inside connections that retail traders don’t.
These market participants could be:
Institutional Investors, which include mutual funds, pension funds, and endowments managing billions.
Hedge Funds, which are aggressive traders who move fast and take high-stake positions.
Market Makers – The "hidden hands" that provide liquidity and manipulate bid-ask spreads.
Dark Pool Traders, that are private institutional traders who place massive trades without public visibility.
With vast capital and resources at their disposal, institutional investors aren't just participants—they are the primary market movers. Estimates suggest they account for over 80% of trading activity on the New York stock exchange, with similar figures worldwide. Their buying and selling in the open market drive the largest price movements, shaping the trends that retail traders rely on. In essence, institutions don’t just trade the market—they create the very charts that swing traders analyze.
Take an institution like Vanguard, which manages over $10 trillion in assets. Behind the scenes, they have an army of fund managers, analysts, and associates sifting through vast amounts of financial data and fundamental research every single day. These professionals enjoy direct access to CEOs and CFOs of publicly traded companies, giving them insights long before the general public catches on. Beyond that, they stay plugged into the market through regular interactions with industry experts and insiders, giving them a significant edge over retail traders.
Because they are well-read, well-connected, and well-informed, they are the first to the party in trends.
Let’s answer another question that must be brewing in your minds, “Why Does Smart Money Matter for Swing Traders?”
Most swing traders subconsciously follow the smart money when they go after price volume action in stocks. If you are scanning stocks for big moves on large volumes, you are essentially trying to find stocks that are being bought or sold by institutional investors.
Tracking institutional money is crucial because sustained moves in stocks are rarely random—they are fueled by the collective buying or selling of multiple large players. The beauty of institutional participation is that it occurs at all price levels but for different reasons. Some institutions operate with a value-driven approach, stepping in when prices reach new lows, and seeing discounted opportunities where others see risk. Meanwhile, others are momentum-driven, aggressively entering positions as stocks push into new highs, capitalizing on strength and trend continuation. This dynamic creates a constant tug-of-war between buyers and sellers, shaping the market’s structure and creating opportunities for informed traders.
Let’s understand why you must trade with smart money.
As a swing trader, aligning your trades with smart money isn’t just beneficial—it’s essential. Your chances of success increase dramatically when you move with institutional flow rather than against it. This is one of the criterion in our scanning tool, it’s programmed to hunt for quality stocks with growing volume and numerous momentum metrics. Merging the metrics into a single score, we can then filter for the very best stocks which are often those being accumulated by smart money.
On the other hand, many inexperienced traders become addicted to the 'buy the dip' strategy in bull markets, assuming that every pullback is a buying opportunity. They treat all stocks the same—seeing a steep decline, they jump in. As the stock drops further, they double down, convinced it will rebound. This cycle continues until they finally realize the trend is broken. But by then, their often into a deep hole waiting for a recovery, missing out on other opportunities.
What these traders often fail to grasp is that they are betting against institutional investors—market participants with far superior information, resources, and execution strategies. Institutions often detect fundamental weaknesses in a stock long before retail traders do. By the time bad news becomes public, smart money has already exited, leaving retail traders holding the bag. Understanding this imbalance is crucial for survival in the markets.
Remember that trading in harmony with the tide of institutional money puts the odds in our favor, whilst going against it can leave us fighting too hard for too long.
Let’s get to another important question, how to track smart money footsteps.
The most reliable indicator of institutional buying or selling is price action. When a stock experiences a significant price move accompanied by a huge trading volume, it signals that institutions are absorbing all available supply at that level. This is especially evident in stocks that break out after multi-year consolidations.
Take Moderna, for example—the stock traded in a tight range for over a year before finally breaking out with a massive weekly price spike, backed by trading volume 20 times its yearly average. This breakout coincided with Moderna's early efforts in developing a COVID-19 vaccine, attracting heavy institutional buying despite the company still being unprofitable at the time. As the vaccine received regulatory approval, Moderna’s stock skyrocketed 20x in just 18 months, offering multiple swing trading opportunities along the way.
Another way to track institutional activity is through accumulation and distribution patterns. During institutional accumulation, a stock sees strong up days and weeks on high volume, while pullbacks are smaller occuring on low volume—a sign that selling pressure is weak. Conversely, in a distribution phase, down days and weeks happen on higher volume, signaling that institutions are unloading their positions.
A great example of this is Spotify (SPOT). Looking at its weekly chart, we can see a clear phase of institutional distribution, where red volume bars (selling) were consistently taller than green bars (buying). After a period of consolidation—a tug-of-war between buyers and sellers—the buyers eventually took control. This was followed by a 10x price increase, with green volume bars consistently outpacing red bars, confirming institutional accumulation and strong momentum.
Notice how the activity is termed as distribution and accumulation, as individual traders we term it as buy and sell because we can enter and exit immediately, whereas institutions hold so much equity that they must either distribute or accumulate over prolonged periods, it is within these periods that they leave clues within the price action. A video I recommend watching later is Trading Price Action, where we dig deeper into price action and its relationship with volume.
Most stocks have a degree of institutional ownership, we can see here the percentage changes depending on the size of the company, the larger the company the larger the interest of the institutions. Tesla however, despite being a mega cap, has a lower percentage due to the higher interest of retail investors.
Identifying institutional ownership matters because their backing provides liquidity and credibility, making it easier for other big players to step in, further driving the stock’s movement.
Using price and volume analysis to confirm accumulation or distribution is a key approach but it’s also highly beneficial to understand the fundamental catalyst driving institutional action. The stronger the fundamental trigger, the more aggressive the accumulation or distribution.
For example, in Moderna, the development of the COVID-19 vaccine was a game-changing catalyst, leading to massive institutional buying at all price levels and delivering extraordinary returns in a short period. Similarly, in NVIDIA, institutional interest has remained consistently strong over the years, driven by sequential waves of demand—first for gaming, then for data centers and machine learning, and now for artificial intelligence (AI) applications.
By aligning your trades with institutional movements and understanding their motivations, you significantly increase your odds of success in the market.
Before we wrap up, here’s an important word of caution.
Since the majority of market activity is driven by institutions, institutional movements alone can be noisy and misleading. There’s always institutional buying and selling happening, often for reasons unrelated to a stock’s long-term trend. Relying solely on institutional activity for trading decisions can be a costly mistake. Instead, think of it as a supporting factor—a tool to refine your trading plan or help you choose between strong trading candidates. When used correctly, it can improve your win rate, which, over time, can lead to a significant impact on your overall trading performance.
Imagine you theoretically take 30 trades a year, with 10 open positions at a time, a 50% win rate, and a 1 to 3 risk-to-reward ratio. Under these conditions, you could generate an annual return of over 45%. However, if by applying institutional analysis improves your win rate by just 5 percentage points—from 50% to 55%—your annual return jumps to over 55%. When compounded over multiple years, this seemingly small improvement can make a huge difference to your overall portfolio growth.
Our scanner has been built on that concept; we look at the key Quality metrics of a stock, with each metric adding a level of confidence to the company's operations. We look at numerous levels of momentum, including price, volume, and market trend. Couple that with some technical scoring to identify the strength of a breakout, and we can move the probability of success into our favour over the long term.
You’re more than welcome to use the scanner, join our group, access my E-book and see all my past and future trades by using the links below.
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