The IRREFUTABLE LAWS of the MARKET

Posted on by The INO.com Team

SIX STEPS that every trader needs to know to succeed in the markets.

Step 1: A move begins with the sponsors (smart traders) who have insider knowledge as it relates to a particular stock or market. This information will move a market up or down depending on the insiders' information. These buyers are smart, very smart, and recognize trading/investment opportunities very early in the markup cycle.

Step 2: Days, weeks, or sometimes months after a move has started, there is a brief mention in the electronic media (radio, cable, TV) or on one of the internet chat boards that a market has moved. The public hears for the first time and begins to get interested, but does not buy.

Step 3: A blurb of information appears in print media. The move also begins getting more exposure on blogs and internet message boards. The public starts paying a little more attention, and will buy a little bit.

Step 4: Wall Street and LaSalle Street brokers go into full hype mode and hawk the market to their customers. The public begins buying in greater volume.

Step 5: A full-blown front-page article appears about the particular stock or market in one of the major financial newspapers, magazines, or financial websites. This is often six months after the fact and after a market has shown its greatest appreciation. There is often heavy public buying, even a possible frenzy, as all media, brokers, and so-called "gurus" start to tout the market.

Step 6: As step 5 gets underway, the sponsors or smart traders begin to move out of the market and take their profits off the table.

The Final Step: The move ends, the market falls, and investors lose money.

Does any of this sound familiar to you? If it does then you know the key rules of engagement in the market. If none of this is familiar to you then learn to recognize these six step asap. Your financial life depends on it!!

This is how the markets have worked since the beginning. I hope this insider market tip is of help to you.

Adam Hewison

President, INO.com

Co-creator, MarketClub

46 thoughts on “The IRREFUTABLE LAWS of the MARKET”

  2. One might consider the SEC Form 4 filings on insider trading, which are pubic - MSN reports on the 10 largest insider buys and sells over the past 30 days - for example Barnes and Noble insiders poured $90 million into the company upon the release of their digital reader "nook" in competition with Amazon's Kindle. BKS went from $16 to $24 (now $23.34) since Nov 2.

    You can easily find out the names, dates and amount of each insider trade. They're not reliable indicators but they're interesting.

    I mean, I'm just sayin'

  3. these steps tell the general trend of the market but the fact is that according to the contrarian principle the trend will not necessarily turn back and go downward. the trend is still lingering and sometimes go sideways, a little up and a little down within a certain range. We know it is the ime to move out even though the hype on economy is so trong. thanks for these warnings.

  5. It nice and all to know that there are traders who have access to
    insider information. What does the average 'unsmart' investor do
    when the few so called insider trading web-sites offer paltry info
    on these hot stocks and market rallys at best.

    Erick Tippett
    Chicgo, Illinois

  6. Good one Adam.

    The smart money is institutional investors. Unfortunately us retail dumb money only get institutional transactions on a quarterly basis. But the effect seems to last. Institutional buying / selling confirmed by the charts gives us alpha stocks making big moves.
    You can get some institutional info from finviz.com and nasdaq.com.

    If only market club would provide
    - 30m & 60m triangles & scans
    some key fundamental information
    - EPS & Sales historical graphs
    - Institutional buying / selling graphs
    it would rock.

    Case in point - TSL by using 15 - 60m was I was able to start my 6th swing trade on this stock for another great ride yesterday. The daily and weekly triangles totally miss these great opportunities. And if you check TSL has solid EPS and institutional buying numbers.

    Come on Adam get your staff to provide both 30 - 60m scans and trade triangles. And if you can provide some key fundamental numbers like institutional accumulation / distribution that would be great.

    1. Excellent post! On the final step, where you say "Investors lose money", I would add "Traders can make money". If you recognize a peak, you can lock in profits, if you are a trader.

  8. As a retail guy you can't get the information flows that bigboys like GS get. Remember GS have a large flow business, they can see what their clients like or hate. This info can easily be passed to GS prop which trades accordingly. Whether or not it's supposed to happen is not relevant, GS had just 2 down trading days in Q2 and Q3 2009, go figure the statistical odds of that.

    The only thing left for us outsiders is to watch charts closely - when the insiders move the candle should spike one way or the other, resulting in a breakout.

  9. I read another artcle that was similar. It talked about 4 phases. 1) smart money accumilation 2) The run up 3) rollover 4) price drop. The names are not correct but you get the idea. During accumilation smart money is buying up as many shares as they can. Once they have as much as they want, or all that anyone is willing to sell. The bollinger bands will tighten and they start the hype. After the public comes in and starts running the price up. They wait until the rollover (or maybe just before) and unload the stock at a higher price. Once the unsuspecting public finds out they've been dupped the price falls back down and the process starts all over again.

    Obviously the idea is to buy in step 2 (you would have to be an insider to buy in step 1). That's the key. Ok Adam spill the beans! How do we get in at step 2? Where do we go? Which electronic media? Which print? Which blogs? which internet sites? Where? That's the 64k dollar question. 🙂

    I have learned more from your videos over the last 3 to 4 months than I ever did working as a Broker for UBS for 5 years! Thanks for giving back!

    1. Thomas,

      To answer the 64K dollar question use MarketClub and our Trade Triangle technology. That way you'll be part of the smart money.

      Thank you for your kind words in every success.

      Adam

  10. Thanks Adam...
    I would think that Technical Analysis could be a great way to stay ahead of the game.
    What other ways do you suggest, which would help read the big boys' hands?
    Cheers!!

  11. Obviously the only way to tell is either with inside information (which you don't have) or by following the price action, which our lovely triangles are indicator sof. Adam is basically arguing the futility of trading on pure fundamentals. Also, beware unexplained and unsustainable spikes in either direction, such as "Gold can only go higher" and "the US dollar is garbage and can only go lower". Sure signs of a top or bottom, right? Put in trailing stops just below the 9-day moving average (or 20 or 50 etc., depending on your time horizon).

  12. Although interesting, this is not too big news for me.

    I remember writing on a forum: "When I start seeing too many news, mainly those irrelevant news from the companies, but also an affluence a BUY ratings and higher targets", for me this lifts a red flag.

    And very funny, recently my online broker has started to systematically show charts of the stock price, where the vertical axis shows the "density of news"!
    It confirmed my impression (and what Adam says): not very long after you see the peak in the news density, the stocks start to go down.

    Now I do not ask my-self questions about how the "sponsors" get the information on step 1.
    Insider trading is *not* illegal, but it's a good first thing to look at before buying.
    What is illegal, is to buy after having received insiders tips, but this is done all the time: big traders and big Funds pay lots of money for that information.

    When you suddenly see a huge volume on no news, you know that someone knows something that you don't!
    I don't know how it works on the US Market, but on the TSE, this often triggers a trading halt until the company discloses an explanation.
    Once (long ago when I was with a traditional broker), I had decided to sell my holdings of what later became Nortel, and that I had just bought 5 days before.
    I sold for very personal reasons, but the next day, the stock fell 20%, another 15% the day after: the news came out that the books had been cooked.
    My broker harassed me for a week to know who had given me the insider tip. There was none! I simply needed the money for something else, and it was the only stock in my portfolio that would have given me the amount of cash that I needed in one trade (remember what the fees were in that time?)

  13. Adam,
    This is excellent flow diagram(Steps). Can you tell me at what step number is our monthly,weekly, and daily triangles generates. Is there any way to identify any stock or market in step 1 or 2 to get on bandwagon earlier than usually late.
    Thanks a lot for your valuable input or guidence.
    Hitesh

  14. It appears that, just like catching trends, being part of this market from steps #2 though #5 would allow a non-sponsor to make a comfortable profit. Does this agree with participating in the meat of a move?

    1. Bill,

      Thank you for your feedback.

      We are content in MarketClub catching the middle part of the move and leaving the 10% on the top and bottom to someone else. We are very happy with the middle.

      All the best,
      Adam

  15. Excellent Adam! But how can we recognize step 1? So in one way we get manipulated from the media. How can we avoid step 5 if we do not know step1?

    1. Maria,

      The easiest way to do this Maria, is to use MarketClub's trade triangle technology. It won't get you in at the bottom and it won't get you out at the top. What it will do is allow you to catch the fat part of the move. That's where you make all the money.

      All the best to you,
      Adam

  16. Hello Adam: Good article, but how do we find these before they reach the latter stages just before they start down. There are so many stocks out there it is difficult to find them in Steps 1,2 or 3. I subscribe to several services, but never seem to get in early. Help, please! Thanks.

    1. Charles,

      I strongly recommend that you use the SmartScan technology from MarketClub. This will help identify the markets that are beginning and also ending. You can also use MarketClub's trade triangle technology which catches the fat part of the move.

      All the best to you,
      Adam

  17. Yes - To Don's point - Great website Adam.
    How, if possible at all, do we recognize Step 1 and stay ahead of the curve rather than play catch up?

    1. Nick,

      I strongly recommend that you use the SmartScan technology from MarketClub. This will help identify the markets that are beginning and also ending. You can also use MarketClub’s trade triangle technology which catches the fat part of the move.

      All the best to you,
      Adam

  18. Thanks for your message. Really i have gain nothing from this web i mean in terms of monetary.I Registered under forexo. and decided to open an account with liberty reserve for twenty-one days all amounts to nothing because up till today i don't have liberty reserve account. It's sad to narrate such story.

  21. Thanks Adam, but are you going to tell us how to recognize when Step 1 begins? I think we all know the progression and have been hammered by it many times in the past.

  23. This post is just dying to be illustrated with a video. Not necessarily the same type you usually make, but still, an animated presentation of some sort. (Of course, it's easy for me to say that, since I'm not the one doing it.)

  24. "Hedge funds are shoveling money into stocks as individuals exit at the fastest rate in a year..."

    Wow, what a professionalism...so the indicator for stocks is retail people, not independent research (eventually based on fundamentals)...

  25. My thought is where do the "smart traders" get their information
    that a stock is about to move? If the data is not publicly
    aren't they guilty of insider trading?

  26. This is so right !
    But how, if possible at all, recognize step 1 ?
    You have a great web site Adam. Keep up the excellent work.

  27. This is my first triple: But I mean to say, the Bloomberg article might be a function of step 5 in your analysis, Adam, and I promise to shut up now.

  28. Excuse the double post, but I note a bloomberg story this AM that might be germaine to this topic:

    "Hedge funds are shoveling money into stocks as individuals exit at the fastest rate in a year, a sign to professional investors that the Standard & Poor’s 500 Index is poised to extend its gains."

    1. Sure, they'll extent it only to sell it hard at 1130. Commercials traders [50% of the market] and MarketClub members of course will sell this market hard at that level.

      Great post Adam!

  30. Thank you Adam. Do you advise making use of the SEC reports on insider trading? I would appreciate a blog on how traders can ferret out this information, how to evaluate it, and how to incorporate it into a trading plan.

    1. Is this what we could be seeing with GOLD or SILVER... is it time to SHORT the metals? OR BUY put options for GOLD?

      1. With gold we are at step 2 or 3. The boom phase has just started.
        Not a sign of the general public wetting themselves over gold yet. Gold has another 3 to 10 years to go if this would be a 'normal' market.
        Since the dollar is doomed (caused by the US government and the FED) and all fiat currencies will eventually die, more and more people will start realising that precious metals is the only real money.

    2. "So we are always too late?"
      Marco: You'll want to read the classic "How I Made $2,000,000 in the Stock Market" (back when that was a lotta money) by Nicolas Darvas. You can buy a reprint on Amazon, or maybe find it free somewhere online. The book answers your question in a big way.

      "“Hedge funds are shoveling money into stocks as individuals exit at the fastest rate in a year, a sign to professional investors that the Standard & Poor’s 500 Index is poised to extend its gains.”

      Read that whole story CAREFULLY - not just that one line. You'll see that it's far from an "all-clear" signal to jump into the market.

  32. Thanks Adam, I understand that. But who are exactly these sponsors? Are CFOs of a company? Is Goldman Sachs smart money? How about hedgies? Can a retail investor be "smart money" on a particular stock? Is "smart money" the insiders? Is this thing dynamic (on a stock I'm a "smart money" and on other "dumb money")? Everybody talks about these people but they don't offer a clear image of them. Who are they more precisely? thanks

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