Monday, August 13, 2012

Candlesticks

MetaStock SPRS Series - Week 81 - TechniTrader® Stock Discussion for MetaStock Users - Candlesticks - August 13, 2012
By: Martha Stokes C.M.T.


Candlesticks have become very popular since they were introduced to western technical analysts back in the mid-1990’s. The first use of candlesticks in trading were not buy entry signals, but to identify reversals and continuation candle patterns.

As the electronic market place has changed the market structure, the number of market participant groups, how stocks are bought and sold, on exchanges, Dark Pools, and over the counter, this has altered what price does on a stock chart. What is occuring is an evolution of the candlestick patterns altering the original concepts and providing for candlesticks as an entry tool rather than an indicator.

Below is one of the newer candle buy signals called a sandwich which is a squeeze of the opposing side of the trade.

This confirms that buyers are totally in control of price even though profit taking commenced for one day. It eliminates the normal retracement that would occur.


Chart 1

So what happened on those 3 days?

First High Frequency Trading Firms moved in on news, pushing price up before the stock market opened. This has been their strategy for many months now. They snatch news feeds before they reach retail traders news websites and the news triggers pre-market HFT orders on the millisecond scale. By the time retail traders get the news and start trading, price has already gapped.

The HFTS using this strategy are only trading the stock for one day. As they stop trading the stock, price falls creating the long wick due to a sudden void of millisecond trading. The next day traders sell the stock some at a loss because the wick ate most of their profits.

Then the next day the stock resumes a buying pattern because another market participant groups orders triggered as the stock fell back into their buying price zone.

This is what creates the sandwich pattern seen frequently during volatile market conditions.

Learn to read the new patterns that are forming in our markets due to the 9 different market participant groups. When you can identify who is controlling price, you will be able to anticipate the price action and direction, especially in sideways markets.

Trade wisely,

Martha Stokes, C.M.T.
Member of Market Technicians Association
Master Rated Technical Analyst: Decisions Unlimited, Inc.
Instructor and Developer of TechniTrader® Stock Market Courses
http://technitrader.com
MetaStock Partner

©2012 Decisions Unlimited, Inc.

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