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the SMART MONEY charts
These new smart money charts offer you a brand new way of looking at shares. They enable you to look into the past to see if the buyers are entering or leaving a stock and also, to see if they are spending more money than usual.
These 2 indicators offer an unprecedented insight into the popularity of a stock. But first, please take a couple of minutes to understand them properly. It could be worth more than you think.
Make sure you read 'traps for beginners' before using this tool to trade. Also make sure you read more on how and why the Nielsen Supply Demand Indicator works.
This compehensive manual will answer all your questions about this great tool. Once you read it and comprehend the simplicity of it, you'll be on the road to making your riches.
(1mb pdf file)
Basic Tutorial
There are 3 components to the chart.
- Price (yellow)
- Nielsen Supply Demand Indicator (blue)
- Smart Money Indicator (black)
Price (yellow line)
This is the end of day closing price and is currently updated at approximately 12:30pm every trading night for this week and then from the 30th June it will be updated at 7:30pm every trading night. The price scale is on the left hand side. There is 6 months worth of data.
Nielsen Supply Demand Indicator (blue line)
First, let's get this straight. This is like no other indicator on the market. The information is derived from the intentions of people wanting to buy or sell a stock (ie the market depth queue). All other indicators are derived from some sort of mathematical calculation from historical price and volume data.
Example of a market depth queue from which these indicators are derived
In essence, it represents the pressure of bids and asks in the market depth queue. This information in these charts are taken from the depth queue after the market has closed each day. For more detailed analysis you will need PhoenixAI market data software.
How do we create this indicator?
We first create a ratio of the shares on either side of the depth queue to get a feel as to the buying or selling pressure. This is then plotted on the chart so we can tell if the buyers are entering or exiting a stock. The ratio can be seen on the left hand scale of the chart.
The calculation:
Total number of shares on the BUY side
Total number of shares on the SELL side |
A ratio of 1 means that there is the same number of shares on the bid side as there is on the ask side.
A ratio of 2 means that there are twice as many shares on the bid side as there are on the ask side
A ratio of 0.5 means that there are twice as many shares on the ask side as there are on the bid side.
Normally the share price will follow the supply demand indicator as the price will change according to the supply and demand of the stock. Sometimes though, there will be a divergence between the price and the supply demand indicator. This is usually a forewarning of some impending price action. For example, if the price of a stocks has been falling and you see the blue supply demand indicator increase, it means that buyers are entering again – possibly because they think it is undervalued.
The Smart Money Indicator (black line)
This is the newest technology to hit the market and it can give you an insight into the activity of buyers that has never been possible before. This tool will enable you to tell whether buyers are purchasing larger or smaller amounts parcels of shares than normal.
In short, it can help spot when people have invested heavily (or are currently investing heavily) in a company. After all, no-one we know spends big money if they think the stock is going down.
It compares the buying pressure of the shares (the Nielsen supply demand indicator) to the pressure of the individual buyers which we can see in the depth queue. Simply, when the black line increases, it means that the buyers (on average) are prepared to buy more shares than the sellers are prepared to sell. When the black line goes down, it means that the sellers (on average) want to sell more shares than people are prepare to buy.
When the ratio is one, it means that the buyers and sellers are wanting to trade the same average size parcel.
We use it as another clue to our trading decisions. If you see the Smart Money entering a stock, it could mean that people who know more than you do are investing heavily. You have to then ask yourself - Do they know something you don't?
In conjunction with your other research, this can be a very powerful clue as to the future price action - especially in the small to mid cap stocks.
EXAMPLES
This is an outstanding surveillance tool that can monitor the pressure (and size) of traders intentions. Used correctly you can easily become a better trader but like anything in the stock market you have to look atthe bigger picture. Following are some important points to be aware of...
- Always check the market depth queue before relying on this indicator. Sometimes people will put in an unrealistic bid that will make the indicators increase
- Make sure that there is enough depth in the queue to make it a tradeable stock. With really small volumes, even a trade of $10,000 can make the skew the buy/sell ratio significantly.
- These indicators are most accurate on small to mid cap stocks. With the big blue chips (eg BHP) this indicator cannot be relied upon as the data from the market depth queue at the end of the day is only a very small percentage of the days trading action. Also, large fund managers trade these stocks without entering the depth queue which we are monitoring.
- Undisclosed bids or asks are treated as $200,000 which is the minimum that an undisclosed bid or offer can be. It could be higher than this number but we don't know what it is.
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