Institutional trading strategies are typically closely guarded secrets, but some methods have been leaked, reverse-engineered, or shared by ex-traders over the years. Here are some confirmed or highly suspected institutional strategies that have been discussed publicly:
1. Order Flow & Liquidity Hunting (The Most Leaked Strategy)
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How it works:
Institutions don’t just buy/sell at market price—they manipulate price to trigger stops and collect liquidity before reversing.-
They look for key support/resistance levels where retail traders place stops.
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They push price briefly beyond these levels (fake breakout) to trigger stops, then reverse.
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Proof:
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Former Goldman Sachs trader Anton Kreil confirmed this in his training courses.
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The "Bart Pattern" (named after a Simpsons meme) is a known liquidity grab move seen in forex and futures.
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2. Iceberg Orders & Hidden Liquidity
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How it works:
Big players split large orders into smaller chunks to avoid moving the market.-
They use iceberg orders (only a small portion is visible in the order book).
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They hide liquidity in dark pools to prevent front-running.
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Proof:
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Leaked documents from Citadel, Virtu, and Jump Trading show they use hidden order types.
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The book "Dark Pools" by Scott Patterson discusses this in detail.
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3. Algorithmic Stop Hunts (Spoofing & Layering)
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How it works:
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HFT firms place fake orders (spoofing) to trick retail traders.
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Once stops are triggered, they cancel their fake orders and trade in the opposite direction.
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Proof:
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Navinder Sarao (the "Flash Crash" trader) was arrested for spoofing.
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The SEC has fined multiple banks for spoofing in futures markets.
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4. VWAP (Volume-Weighted Average Price) Trading
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How it works:
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Institutions execute large orders close to VWAP to avoid slippage.
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They buy below VWAP and sell above it in a controlled manner.
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Proof:
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Publicly documented in Bloomberg Terminal’s VWAP algo.
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Used by pension funds and hedge funds (e.g., Renaissance Technologies).
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5. Market-Making & Statistical Arbitrage
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How it works:
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Firms like Citadel Securities and Jane Street profit from the bid-ask spread.
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They use mean-reversion strategies to fade extreme moves.
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Proof:
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Jane Street’s interviews mention stat arb strategies.
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The book "Inside the Black Box" by Rishi Narang explains this.
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6. The "POMO" Strategy (Fed-Induced Moves)
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How it works:
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When the Fed does Permanent Open Market Operations (POMO), big banks front-run liquidity injections.
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They buy before the Fed and sell into the rally.
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Proof:
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Former NY Fed trader Leigh Baldwin exposed this in interviews.
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The "Fed Model" is well-documented in macro trading circles.
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7. The "Turtle Soup" Strategy (Fading Breakouts)
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How it works:
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Institutions intentionally fake breakouts to trap retail traders.
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They fade the breakout once retail traders pile in.
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Proof:
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Linda Raschke (ex-prop trader) has discussed this.
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The original Turtle Traders (Richard Dennis’ students) used a version of this.
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8. Correlation Trading (Risk-On/Risk-Off)
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How it works:
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Big funds trade asset correlations (e.g., USD-JPY vs. S&P 500).
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If stocks rally, they short JPY and buy SPX futures.
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Proof:
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Goldman Sachs’ "Risk-On/Risk-Off" reports leaked years ago.
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Bridgewater’s "All Weather" strategy is based on correlations.
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How Retail Traders Can Use These Leaks
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Trade with the banks, not against them – look for liquidity pools and fakeouts.
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Watch for VWAP rejections – institutions often fade extreme deviations.
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Avoid chasing breakouts – wait for confirmation (institutions love trapping retail).
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Use time & sales data – spot iceberg orders and hidden liquidity.
