Focus on monitoring massive block trades in the dark pool. The dark pool is a trading system where institutions may trade with each other in size. These trades are not reported immediately like other trades. They are reported hours later or if trades are done in London they are reported the next day.
You may study more about Dark Pool Trading by reading Stephanie Kammerman’s book, Dark Pool Secrets. You can get this book free with a small charge for shipping and handling at http://www.thestockwhisperer.com. This book provides detailed advice about how to use Dark Pool trade prints to profit.
In June 2, 2014, Finra began to make Dark Pool data available. This data was already available to investors and professionals on a real time basis through securities information processors (SIP’s) but the trades were not attributable to a specific Dark Pool. Through Finra you can get data for Tier 1 stocks on a two-week delayed basis and all other NMS stocks are released another two weeks following. There are only a few brokers that have software and a delivery system to see these trades in real time as soon as they are reported. Charles Schwab’s block trade indicator called Street Smart Edge is especially useful. LightSpeed’s Data Trader Pro.com and CBOE’s Livevol Pro Trading platform offer very useful information as well.
Profiting on this information requires an educational component. Often after a trade is reported a stock might go in the opposite direction for a day or two and then make its big move in the opposite direction. A knowledge of chart reading is helpful in determining levels of support and resistance. Stephanie Kammerman has an app, which gives both the Dark Pool trades and the support and resistance data each day for a very small monthly cost. Options are often the best vehicle because you may buy both a put and a call for a small cost and have an excellent probability of a high percentage gain, especially when the Dark Pool trades are massive. Usually the stocks make their moves within a two-week period.
All trading requires risk management. An investor must employ risk management strategies. Proper trade sizing, diversification, stop loss provisions and hedging when positions are held overnight are used. I have been using Stephanie’s services for about six months and have found following Dark Pool trades to be a significant part of my trading profits.
2. Monitoring Large Option Trades
The Najarian brothers seen on CNBC consider monitoring large options trades to be their #1 most profitable investment strategy. In their new book, Follow The Smart Money they discuss how they use their valuable information.
I subscribe to a service named Trade-Alert.com. Trade-Alert is a programmable service that reports option trades in seconds from all the option exchanges. I have found that particularly large transactions executed simultaneously across all the option exchanges (in effect taking all options available at a particular strike price) in the same expiration month are the most valuable. It is of particular interest if it is an odd number of options bought at the offering price with a strike price above the current market price and a cost that represents a great deal of money. It is also helpful if the expiration date is not far away from the trade date.
Risk management is important here as well. Do not over buy and do have a plan for risk control before you invest. I have found that I need to execute at a favorable price right away or I need to have patience to enter correctly. Others follow these trades, so you must act quickly or wait for a reasonable entry point.
It took me a while to master my emotions in order to use this information wisely. At first I bought immediately. If I was fast enough I did well, but if I was just a few seconds late, I paid too much and had an immediate loss. I learned to wait for a good set up to buy even if it took a day or two.