Friday, July 22, 2011

Institutions, Dumb Money, and Day Traders

Bespoke opined that the recent rally was driven by dumb money because the market moved higher in the first hour but lost steam in the last hour. I think Bespoke's reasoning is flawed. It forgot to account for the day traders, who trade for very short term and drive the market up and down by enormous amount of liquidity. Dumb money, or individual investors, is the most vulnerable under day traders' attack. I'd imagine that day traders will take the other side of dumb money and because day traders are more sophisticated and powerful, market will move against dumb money's intention. So if we see the market surges in morning, probably it is day traders that move the market up, trying to squeeze dumb money who's selling.

And it is normal that in the last hour the market moves in the opposite direction from that of the first hour, simply because day traders always close all positions - which they opened in the morning - before the market closes.

All in all, dumb money is not supposed to move the market, they are supposed to hold the bags after the market is moved.


  1. Day traders seek to make profits by leveraging large amounts of capital to take advantage of small price movements in highly liquid stocks or indexes. A large percentage of day traders work for investment firms or are specialists in fund management. Thanks a lot.

    Day Traders

    1. Thanks. I see you have two blogs about day trading, are you still updating them?