Buy Side Institutions versus Sell Side Institutions
There is a hidden world within Wall Street that the average Retail Trader never sees or hears about. Right now, two powerhouse sides of the market are at war with each other. It is the Buy Side Institutions versus the Sell Side Institutions. It is a battle for dominance in the financial world of the US. It often creates contrarian patterns within stock and index trends that can confound traders if they are unaware of what is going on behind the scenes. Relational Technical Analysis of stock charts can be applied to reveal these patterns.
“Wall Street” is not one entity but numerous distinctly different Market Participant Groups that everyone knows as “the professional side of the market.” The most prominent and influential are the Buy Side Institutions and Sell Side Institutions.
The Buy Side Institutions are a group of huge Mutual Funds, Pension Funds, online Retail Brokers, and franchised local neighborhood brokers. These companies provide services to the community of Retail Investors and Retail Traders. Their influence has been growing since 2009 as they altered how, where, and when they buy or sell stocks and other financial instruments and derivatives.
The Sell Side Institutions are the giant Money Central Banks, International Banks, and major Financial Services companies. Prior to the banking debacle, the Sell Side made most of their revenues in the financial markets catering to the needs of the Buy Side. The Sell Side developed Hedge Funds, Research Papers, Alternative Trading Venues, aka Dark Pools and Twilight Pools which are off the exchange trading platforms.
They also created various Exchange Traded Products, such as Exchange Traded Funds, Exchange Traded Notes, Credit Default Swaps, and other exotic derivatives traded on the various financial markets.
Since 2009, the revenues earned from the Buy Side have been dwindling steadily as the Buy Side lost confidence and trust in the Sell Side after the banking debacle that led to the Great Recession, and as the savviest investment managers on the planet, they also saw how seriously damaged the big banks remained even after the government bailouts.
The Buy Side started by moving away from Sell Side Dark Pool venues, creating their own platforms and alternate routing systems. They began doing their own research instead of buying extremely expensive research papers from the Sell Side. The Buy Side stopped using many Hedge Funds and other exotic derivatives and began using simple options to hedge their portfolios instead. The big banks then realized that they were losing their biggest customers in the financial markets but nothing could stop the bleeding.
The two sides were battling for control over the retail crowd, and influencing these millions of investors and traders on what and how they invest.
Stock Chart Example Using Relational Technical Analysis
Stock charts show a conflict within the price action when compared to Volume indicators that reflect who is dominating which side of the trade. This is a critical analysis we call Relational Technical Analysis for traders to use to understand what price patterns truly mean in terms of how stock values are likely to behave in the short term.
The stock chart example below shows such a pattern with price action:
Martha Stokes CMT
TechniTrader technical analysis using a StockCharts chart, courtesy of StockCharts.com
Chartered Market Technician
Instructor & Developer of TechniTrader Stock & Option Courses
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