How Do I Trade Wiseguy Activity?
How do I use all the Wiseguy information?
I get this question a lot, and I always respond with the same answer: it all depends on YOU. Your trading style, account size, risk tolerance, time horizon, and experience. Some people think I’m just blowing them off with that response, but it’s the f’n truth! That’s why I always say that trying to follow somebody’s trades is completely useless.
With that in mind, here are the three most efficient ways I have utilized this intel.
1. DAY TRADING. Scalping, short term trading or in whatever form of trading where you are not holding positions overnight.
I feel this where the true edge in this information lies because you can manage your risk more effectively and the immediate reaction that we often see once that sharp or aggressive order hits the tape is easiest to follow on shorter time horizons.
These are not exact numbers, but in my opinion, roughly 80% of Wiseguy orders that I look for will see some sort of reaction. Whether it’s from market makers hedging their book or word starting to circulate regarding that transaction, you will often see a tradable push off these bets. How drastic of a reaction or how long that push is sustained will vary and depends on several factors (size, multiple orders, sharpness, aggression, liquidity, and market conditions, to name a few).
Regardless, words can’t stress how important that initial push or “cushion” as I like to call it can be to whatever form of day trading you are looking to take part in.
2. SENTIMENT. This is extremely under-appreciated by traders; it can be a powerful tool to add to your trading arsenal. We’ve seen Sweepers tip their hand and step in before tradable moves in the markets way too many times.
For example, just recently we witnessed Sweepers step in aggressively with $USO calls while both the overall market and oil were extremely weak. You could’ve read that in several different ways to profit or prevent losses–long the market, long energy or individual names, cover short positions, to name a few. A lot of times you can get a great read on which sectors may be about to heat up or become weak based on Sweeper activity.
Again, this intel is a lot more accurate on a shorter term outlook, especially in trendless markets. But I’ve seen players solely utilize Wiseguy action as a read on sentiment and become much better traders.
3. POSITION TRADING/INVESTING. Above I explained where the true edge lies and how valuable sentiment can be, so that all obviously can lend a helping hand in regards to longer-term time frames.
Players just have to understand that once the underlying name sees an impact from these sharp orders, it’s up to you to take the wheel of the trade. The Wiseguys have deeper pockets than you and can hold out a lot longer than you can… and obviously, the longer you hold onto an option, the more risk you take on. In other words, just because you’re making a bet that’s the same or similar to a Wiseguy’s bet doesn’t mean you’re safe.
Everybody loses in trading. Regardless of size, money, intelligence…everybody loses in at some point in this game. Get that into your head! The sharp money just knows how to win more than they lose. That’s it.
Now the trade is completely in your hands, it must go by your rules. Don’t get all caught up in the bet. Checking open interest to see if position still sits there can be interesting, but doesn’t guarantee you anything. We have no idea what is happening behind the scenes or the real reason why that player put this bet on in the first place.
That’s why I’m a big proponent of trying to stick with repeat buying and/or multiple orders when it comes to swing trading– there’s a better chance of the bet that you’re trading off of being legit. But if you stick to your game plan and use Wiseguy action as confirmation to what you’re already looking at, it really doesn’t matter. It’s telling you that there’s a good chance that what you have been looking at may be coming into play.
The main thing is that you have to have some sort of gameplan or strategy. What type of trader are you? What type of trader do you want to become? When you know the answers to those questions, you too will win more than you lose and play SHARP!
And that’s the name of the game my friends.