The terms “smart money” and “dumb money” describe different types of market participants. Institutional investors and market insiders are called smart money, while small retail traders and short-term speculators are called dumb money. Dumb money often buys and sells at the worst times, so it can be profitable to trade against it.

Understanding Smart and Dumb Money

There are many ways to define smart and dumb money in global financial markets. Generally, smart money refers to investments made by people with deep market knowledge. These may include successful hedge fund managers, wealthy individuals, or insiders with access to privileged information. Dumb money, on the other hand, usually refers to retail investors with limited market knowledge.

☑ Dumb money often follows exhausted trends and uses high leverage.

☑ Retail traders and small speculators are commonly considered dumb money.

☑ According to statistics over a two-decade period, the average retail investor underperformed the market by 2.75% per year.

Overall, the goal of each trader should be to align with Smart Money (hedge funds, institutional investors, market experts, insiders) and take a contrarian approach to Dumb Money (retail traders, leveraged traders, small speculators). The following analysis highlights tools that can help traders track the movements of smart and dumb money.

Read more: Dumb Money vs Smart Money (Key Indicators)

Applying Gann’s Law of Vibration in Financial Markets

William Delbert Gann (1878–1955) claimed to have discovered a repeating pattern of time and price that allowed him to predict market tops and bottoms. He believed that collective behavior creates cycles over time, which he called the “Law of Vibration.”

🌊 Vibration Theory in Financial Trading

If group behavior creates a repeating pattern, then by calculating where the pattern will appear next, you can make precise predictions about the market’s direction. However, no one has ever clearly explained how Gann’s Law of Vibration actually works. In this article, we will explore the Vibration theory and its implications for financial trading.

🏛️ From Pythagoras to Gann -The Ancient Origins of the Vibration Theory

The origins of Vibration theory date back to the fifth century BC. The Pythagorean school (570–490 BC) studied the natural frequencies of various systems, such as strings and vessels, and concluded that a system’s natural vibration is an inherent property—appearing independently of any external excitation. Pythagoreanism held that everything in nature is interconnected, and the movement of one element generates harmonic associations, or vibrations, with all others in the system. Observation and mathematics were seen as the keys to understanding these natural associations.

Later, legendary analyst William Delbert Gann developed the “Law of Vibration” and used it to predict major movements in equity and commodity markets. Gann, a highly successful trader, combined mathematics and astrology to study key patterns and time cycles associated with market events.

Natural associations create patterns: “The pattern is said to emerge as a result of discontinuities in the perpetual processes of expansion and contraction within the cosmos. According to Mr. Gurdjieff, the discontinuities are a function of the Law of Seven, and the forces of expansion and contraction are a function of the Law of Three.” {Tony Plummer (2013)}

Read more: A Modern Trading Approach to the Law of Vibration (W.D. Gann)

10 Practical Tips for Savvy Investors

Growing your savings through investment is important. Over the past century, the US stock market has delivered the highest returns, beating the housing market and other types of financial assets. Here are some key tips for every investor.

1️⃣ The Investing/Trading Triangle

Investing is a triangle formed by three axes: (i) return, (ii) risk, and (iii) time. Whenever you push on one of these axes, the other two are affected. This means that in any investment:

• If you want high returns, the risk increases, and the time needed to achieve these returns becomes longer.

• If you want high returns in a short time, you will face very high risks.

• Never trust anyone promising high returns with low risk in a short period.

• The same principle applies to trading.

Read more: Investing Tips & Advice

Jesse Livermore's Trading Method

Jesse Livermore was a legendary stock trader who made a fortune by short-selling during the American market crashes of 1907 and 1929. He became world-famous through the book Reminiscences of a Stock Operator (1923), written by journalist Edwin Lefèvre.

Jesse Livermore's Key Rules

Livermore used to say: "Whatever happens in the stock market today has happened before and will happen again."

Here are some key rules from Jesse Livermore:

1️⃣ Markets are never wrong; opinions often are. Back your judgment and don't trust your opinion, until the action of the market itself confirms your opinion

2️⃣ Few people ever make money on tips; beware of inside information. If there was easy money lying around, no one would be forcing it into your pocket

3️⃣ Money is made by sitting, not trading. It takes time to make money. Don't give me timing; give me time

4️⃣ Buy right, sit tight. Big movements take time to develop. Men who can both be right and sit tight are uncommon

5️⃣ Money cannot consistently be made by trading every day or every week during the year

6️⃣ Nothing new ever occurs in the business of speculating or investing in securities and commodities

7️⃣ Never average losses

8️⃣ The human side of every person is the greatest enemy of the average investor or speculator. Wishful thinking must be banished

Read more: Jesse Livermore’s Trading Method and Key Rules