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Strategies & Market Trends : DAYTRADING Fundamentals -- Ignore unavailable to you. Want to Upgrade?

To: TheStockStalker who wrote (11913)	2/17/2001 10:07:45 PM
From: Jon Tara	Respond to of 18137

Pattern, let me clarify my statement. I know that "dumb money" and "smart money" mean different things to different people. I think, though, that the term "smart money" isn't generally applied to traders at all. Or even trading. I really think the term applies more to investors. And, in particular, those investors who are close to the deal, who understand it throughly (in every aspect, from industry, products, marketing, market environment, and the financing itself.) In short, the "smart money" is in a position to know the outcome - or at least in the best position possible. Everybody else - which includes almost all retail investors - represents "dumb money". Who represents "smart money"? Investment bankers. Venture capitalists. Often (but not always) company insiders. Sometimes fund managers. :) The rest of us, frankly, are hacking-away with incomplete information. Now, I would agree that there is "smart trading" and "dumb trading", and I'd agree that most of us here (and I will even include myself :) ) are in the "smart trading" category. We aren't trading because our uncle Phil told us that such-and-such stock is hot, or because we just have a lucky feeling. We all trade with some sort of rational system or methodology. I would submit, as well, that there are trading methods that are "smarter" than others - particularly I'm thinking of various options trading strategies other than simple long options, where one is looking for a profit that can be expected with a reasonable statistical certainty. (At the same time, such strategies are likely NOT the most lucrative ones - just the most reliable.) But none of this "trading" stuff really fits into the classic definition of the term "smart money". I think, really, the term is being somewhat mis-used here. I'll give you an example of what I would call "smart money", in a for-real situation where I did what I would consider some "smart trading". About a month ago, I bought some shares of EIX and PCG (California electric utilities) in the middle of a panic. (Actually, I bought them in the beginning of a recovery from panic - I paid 9 3/8 for the EIX and 10 for the PCG.) A couple of weeks ago, I sold them, taking a 40% profit for about a two-week hold. Now, I sold on technicals - my indicators were starting to look iffy. I had a nice profit, why take the chance? Now, I have an indicator for intra-day trading that I am particularly fond of. It gave a crossover signal, and I sold. 3 minutes later both stocks took a 1-point plunge which continued further over the next couple of days. Well, the pluge was due to legislative vote. (I forget just what it was now.) The actual news (the role-call) didn't occur until near or after the close - my sale and the subsequent dive occured 3-4 hours before the vote occured. Now, I was successful in devining this from the TA. But did I represent "smart money"? No, but I'm absolutely certain there WAS smart money working that day. Who was the smart money? I don't have a name, but I am certain I know what they knew: they were in a position to know how that vote was going to fall that day. That doesn't imply any illegal insider knowledge - but simply being in the right position to KNOW - because you had the information at your fingertips - how those legislators were going to vote that day. A lobbyist, for example, would likely be in such a postion. Many electric industry insiders would be in such a position. Certain media people would be in that position. As well as investment bankers, fund managers, and others whose investments depended on the outcome of that vote - they would have made certain that they were in a position to have that information. Now, that's an example of what I would call true "smart money". The smart money knew how that role-call was going to (or likely to) come out. The rest of us were guessing. The news media, BTW, were betting the other way that day in their reporting.