In the stock market the big money is what moves the markets over the long term. The biggest money mover of all is the Federal Reserve and central banks around the world, their quantitative easing, interest rates, money supply, and monetary policy can create the larger market environment itself. Central banks drive markets with liquidity through the money flowing through the banking systems.
The next level down are the cycles of asset accumulation and distribution by mutual fund managers, institutions like pension funds, hedge funds, and large traders, they are the primary movers of prices on charts in the financial markets.
When large money managers accumulate equities as an asset class this can create a longer term bull market, when money managers distribute equities as an asset class this can cause a bear market until the selling stops. This is what creates uptrends and downtrends in equity indexes.
Accumulation creates higher highs and higher lows:
Distribution creates lower highs and lower lows:
On charts strong support or resistance levels can be seen as the key price levels where accumulation and distribution are taking place with money managers building positions are liquidating positions. These are usually horizontal levels with round price levels, other times it can be what creates horizontal trend lines.
Horizontal support zone showing accumulation.
Horizontal resistance zone showing distribution.
Chart courtesy of TrendSpider.com
Big money players can show they are accumulating or distributing a stock through the trend of volume increasing during a trend on a chart. Think of volume as votes on price and the more volume the more meaning a trend has as it shows the pressure of selling on the way down or buying on the way up.
Increasing volume during an uptrend.
Chart courtesy of TrendSpider.com
Increasing volume during a downtrend.
Chart courtesy of TrendSpider.com
Money managers also rotate their capital from sector to sector, from big cap to small cap, and from old leading stocks to new leading stocks. Inside the stock market different stocks, sectors, and index market caps can be in direction trends or in ranges at any time. You should have a diversified watchlist so you can find where the trends are at any given time.
Stock trading strategies should be created with a structure to generate entry signals to buy into the beginning of potential trends by entering early momentum in price action through breakouts of ranges or using simple moving average signals. Winners should be allowed to run with the trend of big money buying and exit when there is a signal that the trend is beginning to end. Short selling should join in on charts under distribution as they break down from ranges and start creating lower lows and the short should be covered when buying pressure eventually comes back in.
Big money leaves clues, when you see the clues and they all add up you want to be trading in the path of least resistance following the flow of capital not trying to fight it and trade against it. It is much easier to ride in a moving train than to try to bet against it continuing to go in its current direction.