I heard some people said, if an instrument has more retail players than it would usually become more chaotic(e.g. the stocks). The more institutions play it, the more smooth would the movement(the bonds). Does it really make sense?
Oh yes very smooth. I invite you take a punt on any of the commodity markets, they're virtually entirely professional. A few limit days against your position should help you decide just how 'smooth' they are.
A pretty good question. You can find out for yourself by searching stock tickers at this site: http://iw.thomsonfn.com/iwatch/cgi-bin/iw_ticker?ticker=ABS Complete instructions on how to profit from the data are included. Bruce
have you ever seen a herd of cattle? when they get scared or excited, they all run in similar directions. retail players would simply smooth out the moves (and make them larger!), while 'individual' (professional) traders would tend to move in the direction they want, not the herd. so they would make it less smooth and directional. make sense?
Your analogy makes no sense. There is no empirical evidence that institutional traders are either less "panicky" or more skilled than individual retail investors.
in general, the institutional players can move markets, whereas retail traders cannot. does that clear things up?
That point I agree with. So, institutional traders, if leaning the same way, will move the market faster and sharper than retail. Right?
I don't necessarily agree with that. The thing is though is when big institutions rule the trading like in the Treasuries; when they have to buy or have to bail it gives really good strong one directional moves. Look at bonds the last two months. Major selling by Mortgage backed securities portfolios in treasuries to hedge against the rising rates(and the effect of the duration of their portfolios) and they didn't care about anything but dumping. Point is institutions sometimes HAVE to take positions and it becomes very clear in these markets. It's all chaotic though baby !
There is a guy in La Jolla - not the russell dow guy- who writes a well regarded (at least in the past by institutions) market letter. He made the statement that an orderly stock pattern is a stock controlled by institutions and a disorderly one is when the public gets involved. I said how can you prove it. He brought up numerous example of small stocks in accumulation phases with that same pattern and dravas box stair step type look. He then showed me the institutional ownership numbers and talked about the funds that owned theses things. He said who do you think is making all these flat tops at each level and phase. Do you think mom and pop are saying sell all I have at 24 and 3/8 I do not care if I could make more by waiting. He said no. This is a fund keeping off radar screens as they accumulate more and more shares. Then when they have their full position on they juice it up higher on low volume days and unload it on big volume days. It could have been hundreds of well chosen examples but I tend to side with my friend Bill who has been studying this stuff since the first apple computer and before. He then showed me public stocks not in control of experts and it just seemed to be obvious. I do not think the public makes stocks climb in stair step patterns. But I could be wrong but on this one I think Bill was right. That is not to say that who knows what happens when all heck breaks loose. But we do know two Julys ago was great trading and that was instutional liquidation of big caps.