Home > Markets, Uncertainty > Profitable short term trading tactics: monitoring money flow with Trim Tabs

Profitable short term trading tactics: monitoring money flow with Trim Tabs

Trim Tabs is a market research firm that tracks money flows into and out of mutual funds on a regular basis. They make their living providing money flow information to institutional money managers. Periodically they make their reports available to the wider public.

A lot of people pushed the panic button in September. TrimTabs reported $75 billion fled U.S. mutual funds during the month, three times the monthly record set in 2001 for redemptions! About two-thirds of the outflow came from equity funds and the rest from bond funds.

It is an axiom that the mass public will take exactly the wrong actions at market extremes, and so the normal interpretation of this Trim Tabs report is that we are getting close to a major bottom in the market in the intermediate timeframe. The month of September’s selling action would therefore be classified as panic selling which leaves only seasoned market professionals interested in buying which makes this an excellent entry point for the next leg up in the market.

This kind of statistical observation is not a sufficient reason to begin buying in my opinion. I am never interested in being the first mouse trying to get the cheese. I am more than willing to let someone else establish the turning point, I just want to be the second mouse after the market has already turned and I can see price action moving in my favor.

What this means for me, however, is that I will be looking for framing high quality trades that should move vigorously against the previous trend which was down. A good example of this kind of trade was today’s intraday trade in General Motors (GM) which offered several entries at $9.20 with an initial capital preservation stop at $9.02 with a price target of $9.70 which offers slightly more than 3 to 1 reward to risk ratio. It turned out that intraday there were opportunities to exit the trade at $9.80, which shows the power of this kind of short-term trading.

With an initial risk of $.18 if you had risked $180 you could have purchased 1000 shares of General Motors, and cashed a win at $.60 a share for a profit of $600 less the cost of your round-trip trade.

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