Institutional investors, specially huge mutual funds certainly never daytrade. Because of the incredible amounts of money they manage, they take days or weeks to buy. They watch average volume and never trade more than 5% of daily volume. Sometimes they get as high as 10%, but only when rushing for the exit. They divide their daily orders into smaller ones, more or less equally spaced, at random times during the day. Institutions are buying now, but they expect to realize their gains a few MONTHS on. Again, institutions don't daytrade.
Don't give them too much credit. They merely respond to their inflow and outflow of customer money. They do stuff during the first and last hour of the day. That's it.
Some funds do daytrade, it depends on their strategy and style. The Cramer Berkowitz fund was realizing 60%+ a year with intraday trades, but of course when the big bad bear came along.. it was Cramer's wife who held the fund together. Big funds mostly put their orders on at the open and the close, since those are the two times during the day that liquidity is the greatest.
Agreed, but I wouldn't necessarily apply to your theory that the big institutions will "scale" throughout the day with small orders at random times. If the liquidity is there, they will put on their position, especially if it is an asset-allocator ( ie. First Quadrant ) and they are taking a signal from their quant-model. But in general, I agree with what you said.
The market is choppy because sometimes its trends and sometimes it does not. It could not be any other way. For the record though I think its trending petty well right now, no?
If this is true, then all I have to do is wait for the current day's volume to get above 10% of its daily average volume and start fading the move. Since the Mutual Fund will stop trading after 10% of daily average, I won't need to be worry about getting run over by the big money.
As someone who works in custody covering a moderate sized retail fund group, I thought I could add to this topic. It is actually quite rare for institutional traders to trade a position throughout the day, either entering or exiting. Most of the trading is early and late in the day when the liquidity is there. There might be 10 port managers working off the same research, so they'll do as big a block as they can get away with and allocate it through multiple accounts. Large or thinly traded positions can take weeks to enter or exit. On thin issues, institutions tend to deal with a select few desks that can make deals happen, you'll certainly never see them out on the level 2. While mutual funds can trade intraday (and short sell for that matter, they just can't use leverage and must memo-pledge stock or collateralize with cash,) there is really no interest in doing so. The big funds are investing on solid research, and couldn't care less about dime fluctuations. As much as retail traders might think the institutions are picking off their 2 and 3 lot trades, it's simply not the case. As soon as they're off the morning call, they're on the phone or IM with whatever desks are covering what's on the blotter, and that's when they do all the trading until after lunch and the afternoon call.
Funds will spread orders across brokers and brokers will compete to get the best VWAP and quickest completion - what can happen is that a number of brokers are competing on a relative price not absolute basis against each other so between them they will run a stock up until their allocations are complete and then with the buying competition evaporating the stock will return to where it was.