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3.1 - Catching The Stocks The Pros Are Buying

Being large investors, Foreign Institutional Investors (FIIs), mutual funds and other professional investors exert a large amount of influence in the stock market. They buy and sell stocks in large quantities, which, in turn, impact the stock prices upwards (whey they buy) or downwards (when they sell). Here, you'll learn how to spot the stocks in which these institutional investors are interested in.

3.2 - About Institutional Investors

Institutional investors’ stock trades result in a stock’s price moving up or down dramatically.

Institutional investors include mutual funds, FIIs, domestic financial institutions, pension funds, banks and other financial institutions that trade in stocks in bulk on a daily basis. In fact, institutions account for a massive chunk of all trading activity. Clearly, this implies that when institutions target a stock for purchase, it's more likely to go up in price thanks to the increased demand they create.

Institutions make a living buying and selling stocks. They employ analysts, researchers and other specialists to gather comprehensive information about companies. They meet with executives, evaluate industry conditions and study the outlook for every company they plan to invest in.

3.3 - Don’t forget to check the fundamentals

While following stock purchases and sales by institutional investors is smart, it’s also important to check the stock’s fundamental parameters before making your trade. Check the company's earnings, sales growth, return on equity, etc. Factors such as the stock's Relative Price Strength, the industry group's performance and the health of the overall market must be considered too.

3.4 - Key Points to Remember
  • Institutional investors represent the bulk of trading activity in the market. As such, their buying and selling power can move a stock's price up or down dramatically.
  • You can learn to spot which stocks institutions are buying and selling by watching for surges in trading volume.
  • Look for stocks with an increasing total number of institutional owners in recent quarters. Look for those stocks that are owned by more funds each quarter.

Next: Check the Industry Group

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