One of the most important things to understand in the market is where the big money is moving whether that be into or out of a stock in particular of the indexes in general. The big money tries to accumulate shares quietly as in during a long price base, but there are times it moves in fast and is clearly present, e.g., on a breakout. But we also want to know if the big money is moving into a stock before that breakout because that can be critical in whether the breakout succeeds or fails.
There are telltale signs when an institution is buying or selling (‘institutional footprints in the sand’). One of the primary sources is simply looking at how price action and volume relate to one another each session and over a series of sessions. In the most basic sense, when the market rises on overall higher volume and falls on lower volume it shows there are more net buyers than sellers in the market. This also happens with individual stocks. We can tell over a series of weeks if institutions are net buyers of stocks or net sellers (we look at this extensively when evaluating a price base such as a flat base, double bottom, cup w/handle, etc.). We also compare relative volume on up sessions and down sessions; it is not enough to simply note that volume was higher on one session without looking at that volume relative to the previous move and indeed, the previous week. Was it higher on this buying day than on the previous sessions of rising volume when the market was selling?
Beyond just price and volume we have to look at where stocks or indexes close in the trading range intraday, how they close on a weekly basis, how the volume and price compare after a run higher or lower, the number of block trades, summaries of what the mutual funds are buying and selling, etc. Again, we look at several factors to determine this, but overall price and volume interaction is the key. It is not rocket science. It is simply sitting down and looking at the evidence that is there but pulling it together to make sense of it all. It does take a bit of work, but anyone can do it. We cover it in detail in our Technical Analysis seminars, and when you see it you suddenly realize what is going on in the market.