How to Find Stocks with Institutional Demand
- Rohit Musale, CFA
- Feb 4
- 3 min read
I know that I can only make money in stocks if people buy AFTER I buy.
That is the most fundamental way of making money in stocks.
How do I find stocks that people will buy AFTER I buy ?
Obviously, I will have to look for stocks that are in demand.
Why would I waste my time on stocks that people are selling ?
How can I determine demand ?
Easy.
Price and Volume.
If price is going up on high volume, that's demand.
Where does high volume come from ?
Institutions.
The big guys.
The big money.
Right ?
Hence, as a swing and a positional trader, the only place I can make some money is where big institutions are involved.
If they buy AFTER I buy, only then I can make money.
How do I determine institutional demand ?
That too, how do I do that for more than 5,000 stocks in the stock market.
I will need a system to automatically do that for me.
Moreover, I also need a system that can tell me, which stocks have more institutional demand relative to several other stocks that might have some institutional demand too.
This means I need a system that can tell me, relative strength of institutional demand.
This means I will have to compare each stock will all other stocks in the stock market with respect to the demand.
I also need a system that can measure this demand over set time periods.
Its too much work for a human being.
This needs automation.
Thankfully, William O' Neil and team recognized this problem, many decades ago.
And they came up with something called as "Buyer Demand Rating" or "Accumulation Distribution Rating".
Not only that, they also figured out what was this rating for leading stocks BEFORE they began their full scale price advance.
Basically they divided the entire stock market into 5 different buckets. (based on price and volume action over time)
A, B, C, D and E.
A and B means good institutional demand.
C means fair institutional demand.
D and E means no institutional demand.
Simple.
Problem solved.
The details of how this rating is calculated does not matter for us.
What matters is this:
Most leading stocks of the past multiple decades had a rating of either A or B, BEFORE they began their full scale price advance.
Thats the key.
Thats your edge.
Hence, I personally only stick to those stocks with a rating of A or B.
It does not matter whether I am taking a swing trade or a positional trade.
I only deal with A or B stocks.
Rest of the stock market does not even come in my radar.
Is this not a fine way to put the odds of success in your favor ?
Why do extra work when someone has already figured out which stocks are currently in demand and have momentum ?
Will I miss stocks that skyrocket from the C, D and E category ?
Ofcourse.
I am willing to let them go.
I do not want to attend every party in town.
I only want to attend those parties which have already started.
AND
I want to be out BEFORE the party is over.
That happens with sound risk management techniques.
Regards,
Rohit Musale, CFA
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