Getting inside the flying fortress of institutional trades
You can’t miss it, unless you’re blind, deaf and have no sense of feeling. When the Antonov 225 takes off, the ground shakes as the atmosphere submits to this massive aircraft’s will. The six enormous turbofan engines lifting it off the ground sound like they’re laughing at God as they’re pushed to full throttle.
Attempting to take off right behind the 225 in a small puddle jumper is a deathwish, given the jet wash this behemoth leaves behind. Yet that’s exactly what millions of retail traders do every day when making their entries and exits in the face of institutional 225-like moves.
Fortunately there’s a way to get inside huge institutional liftoffs before they taxi to the runway. This can be done by monitoring the very fuel powering their moves – volume.
The market force many traders overlook
Originally developed to carry the Soviet version of the space shuttle, the 225 is a bit of a celebrity in the aviation world, mostly due to its size, power and capacity. If you find yourself needing to haul a massive turbine or fleet of cars – this plane is just the ticket. Stand next to it and you’ll quickly decide it’s better to be inside this plane than alongside or even against it.
The same is true when standing next to institutional volume. Yet, most retail traders have no idea what they’re figuratively standing next to when entering their trade. After they’re blown away when volume takes off, they’re left to pick themselves up – and what’s left of their account.
Why? Many retail traders simply choose to focus on price – instead of the volume preceding price. More specifically, the exact moments when the institutions – who move 90% of the market’s volume – make their move. Instead, many will lean on price-based indicators which are disassociated from volume.
Doing so leads to plenty of blindsides. It also can result in missing opportunities for consistency in your trading.
A vessel for the market’s most important component
The wingspan of the 225 is 290 feet, or 88 meters. According to one source, the cargo hold is actually longer than the Wright Brothers’ historic flight in 1903. At takeoff it can get 640 tons into the air and to cruising altitude. For reference, the 98-ft. concrete statue of Jesus looking over Rio de Janeiro is about 635 tons – so imagine one of those taking off and flying.
When institutions put these types of massive moves into the air, price never really forgets. These volume levels direct the market’s attitude on value – the most critical element to factor in when evaluating locations and exits.
Where there are concentrations of high volume, you’re likely to find the ‘Value Zone’ – the range at which 70% of the market’s volume for any given instrument exists. Within the Value Zone, you’ll find the POC (Point of Control) – the point where the most volume has gone off. Exit the Value Zone at the top and you’re in overbought territory; exit at the bottom – oversold territory.
Along the way, where the institutions have pushed the throttle forward – high volume nodes and/or institutional trading levels. Best to know where those are so you don’t get blown away.
Generating consistency by trading with volume at take-off
In the late eighties, the Soviets decided it was time to start making some money off of their state-owned assets. Fast forward to today and you’ll find that the 225 is the workhorse of the Antonov family, hauling massive generators all over the world without batting an eyelash.
You can turn institutional volume into a workhorse simply by keeping track of it. Using the Volume Composite, you can track high volume moments, where the institutions have taken off – by noting the high volume nodes.
Using the CL example here, you can easily spot the correlation between high volume nodes and the behavior of price. Each of these moments presented quality opportunities for high probability reversal or continuation trades. Mapping these to your chart – as noted here – and stalking these moments is an easily repeatable exercise.
Appreciating the pull of historical volume extremes
Just like the cargo hold in the 225, price’s memory goes back a long way. If you’re wondering why something in the past is an indication of what may happen moving forward – simply look left.
With our CL example, you can clearly see how price respected high volume moments well into the past, for the better part of a year – potentially more. This is because volume of this size can’t be ignored. Regardless of the news or world event that fueled the institutional activity, price will remember and honor those levels.
The same holds true for volume rejection. Specifically, moments where the institutions packed it away and hit the brakes. Plot these on your chart and see if you’re not convinced that long-standing institutional volume – on both sides – doesn’t have an impact on price.
This is a case where history is your friend and trading with volume is your safety.
Go full-throttle with institutional volume
For all its power and might, the Antonov 225 does have some limitations. For instance, it’s not advisable to take it higher than 40,000 feet, and its airspeed is slower than other cargo planes. Due to the size of runway required, the number of airports that can receive it are limited.
Not so with volume. The sky’s the limit and any market will receive this strategy. Take a look at the volume profile for your market of choice, starting with a 300-day look-back. Note the high and low volume points in price and add those to your chart.
When you look left to verify whether price respected these levels, you should be pleased with what you find. Prioritize these candidate locations and stalk them as price approaches. When you make your move, monitor the volume within each candle as called out with the COT – and track your way to your target.
Fly with the massive institutional moves and benefit with the force of volume.