What is smart money and how to use it to identify profitable shares?

As a general note, keep in mind that most of the time, it’s easier to find smart money in small stocks than in large, index-making stocks. Here we mention three things that you can use to recognize the entry of smart money into a share. All three of these items can be accessed on the market map and filter pages of Rahvard 365. These three items are:

• Real and legal purchasing power
• Supply and demand pressure
• Suspicious volume

Purchasing power is obtained by dividing per capita purchases by per capita sales and determines how much money each buyer has entered the market on average. To obtain the purchase price per share, the total purchase amount of a share in a trading day is divided by the number of buyers of that share. In this way, it is determined how much money each buyer has entered the market on average.

◊  Also read this article: Macroeconomics education from zero to hundred

To obtain the per capita sales, the total sales amount of a share in one trading day is divided by the number of sellers of that share and the average amount that each seller removed from the market is determined. Buying or selling power is actually a comparison between the buying and selling per capita of a share.

If the money that each buyer brought into the market on average is more than the money that each seller took out of the market on average, it indicates high purchasing power, and if it is less than that, it indicates high selling power. According to these explanations, we find that the higher the real or legal purchasing power, it means that the real or legal buyers have purchased shares with higher numbers.

You can check which shares show a buying power higher than 2 with the help of the market map or the filter on the Rehvard 365 site. This will be the first step in checking the arrival of smart money. If you intend to recognize this issue through the market map page, after entering the special page, activate the “coloring” menu on the “real purchasing power” or “legal purchasing power” option.

The image below shows an example where we have activated the market map on the real purchasing power mode. That said, it’s good to make symbols that show a number higher than 2 candidates for further consideration for smart money entry.

In the image below, you can see that the symbols “Sita”, “Vespehr”, “Wahiya”, “Apal”, “Wapkhesh” and “Mayar” show numbers higher than 2 and it would be good to do more research on them. It should be noted that you can see the complete training of the Rahvard market map page along with the relevant training video in this link.

The second way to check real and legal purchasing power is to use the filter section of Rahvard site. To write such a filter, you can find symbols that have such a feature by selecting the format “True Purchasing Power” or “Legal Purchasing Power” from the drop-down menu at the top of the screen and setting its value to “Higher than 2”.

In many cases, as smart money enters a stock, there is a queue to buy it. The supply and demand pressure on the Rahvard site at any moment is calculated by dividing the total buy orders of a symbol by the total sell orders. The obtained number is normalized and a number between zero and one hundred is obtained. Zero means forming a sell queue for a symbol and hundred means forming a buy queue for that symbol. Accordingly, the depth of orders for a symbol is determined.

In this way, if the total buy and sell orders of the board are completely equal, the supply and demand pressure will show the number 50. The pressure of demand or the buying queue can be a sign of smart money entering the stock. Of course, don’t forget that none of the mentioned signs are a definite signal of smart money entering, and you can only check the “probability” of such a thing by checking them.

The experience of older traders shows that sometimes “high supply and demand pressure” and, at the same time, “no change in the share price on the board” can be a sign of smart money entering it. With the help of the market map or the filter on the Rahvard 365 site, check for which shares the queue to buy is forming. If you want to know for which stocks there is a queue to buy, you can use the forecast market map. For this you can adjust the market map to supply and demand pressure.

But it may not be very difficult for you to find out which shares have been lined up for purchase. Because in this case, you will also join the buying queue and you may not be able to buy the share at the time you have decided. In order to avoid such a problem, you can use a trick on the search filter page.

We said that when the buying queue is formed, the pressure of supply and demand shows the number of one hundred. This trick is to set “supply and demand pressure” in the filters to a value that has not yet reached 100, but is not far from it. For example, you can set the filter so that stocks are filtered when the supply and demand pressure is between 80 and 95. In this way, you can recognize the shares that are forming a queue to buy.

Suspicious volume is obtained by dividing the “transaction volume” of a symbol in one day by the “average volume of transactions of the last 30 trading days” of the same symbol. Unusual trading volume in a day can be a sign of smart money entering a stock.

With the help of the market map or the filter on the Rehvard 365 site, if the suspicious volume of a symbol is higher than 2, put it on your check list. For example, in the image below, the Vesper icon shows a suspicious volume of 10/6. This number shows that in the last trading day, the trading volume of this symbol was more than ten times higher than the average of the last thirty days.

Another method that will probably be more useful for you is to use the results filter page. You can find suspicious volumes using the RV indicator. This indicator is defined for 15, 30 and 90 time periods. But for questionable volumes, a period of 30 days is usually used, and this amount is completely valid.