Market advances but Smart Money turns. The Emini closed up 2.75 points at 1,373.50 on Friday. The market continued its advance today but with only a small rise and weaker volume. Are the professionals taking profits?
Follow the Smart Money
In previous articles I’ve mentioned the importance of tracking professional buying and selling. For example, the Larry Williams Oops pattern identifies professionals taking advantage of non-professionals at the market open. Then there’s my Secret Weapon No. 2 indicator that uses the difference in opening and closing prices to quantify professional and non-professional market activity.
Today, I’d like to introduce another indicator that measures the professionals. Instead of using the opening price or differences in open and close prices, it uses the last hour of trade to gauge professional buying or selling.
We can do better than the Smart Money indicator
This idea is not a new one and an indicator already exists that compares the first hour’s trade with the last hour’s trade. This indicator is called the Smart Money indicator and refers to non-professional trading during the first hour as “dumb” money and professional trading during the last hour as “smart” money. I’ve taken this indicator and refined it further to get what I believe is a better measure of market swings.
The mathematics of my Secret Weapon No. 3 indicator are not easy to explain without going into some detail. Besides, I’d rather keep it to myself. However, I can tell you that I just use the last hour’s trade rather than both the first and last hour of trade. Anyway, the indicator is plotted on the chart above and labeled Secret 3.
This is one of my favorite indicators because it turns in advance of the market. As you can see, over the last couple of days the indicator has begun to turn down and shows that professional buying pressure is declining and they are taking profits. Let’s see how this indicator does in predicting the market over the next few days.
Don’t use this indicator alone
Remember, combining a number of non-correlated market indicators and patterns will help you identify high probability turning points.
Do a Google search for Smart Money indicator to get more information.