Monday, September 24, 2012

Heading Towards Resistance

MetaStock SPRS Series - Week 87 - TechniTrader® Stock Discussion for MetaStock Users - Heading Towards Resistance - September 24, 2012
By: Martha Stokes C.M.T.


One of the dilemmas that a retail trader faces is holding a stock as it heads toward resistance. The questions always arise, will the stock retrace, correct, or move sideways?

Where a stock stops, the volume patterns, flow of funds, and consistency of quiet accumulation help determine what the stock will do next.

IBM is at a point where it has run up nicely on a swing style run and is at a resistance level. The resistance above its current price, is all time high resistance from earlier this year.

The questions most traders have are whether this is the end of the run, OR will IBM move up beyond that all time high to form a new high.


Chart 1

Volume is stronger to the upside and weaker to the downside, indicating that the selling is profit taking on a light mode. The pattern is a consolidation and the stock is holding to the weak support lows.

The TechniTrader® Volume Accumulation TTVA indicator in the middle chart window, is dipping slightly down as is normal for a profit taking phase. The TechniTrader® Flow of Funds TTFF indicator in the bottom chart window, is not extreme and has risen as the stock has moved up.

All volume indicators point to strength. The bottoming pattern is a short term inverse H&S, which can be a strong bottom formation especially on a short term. Prior consolidations are offering support also for fundamentalists considering this stock.

Remember there are 2 major factions in the stock market:

  1. The fundamentalists that account for 70% or more of the market action. These are the funds and institutions, both sell side and buy side market participants. They are searching for what they consider “bargains” based on future growth of the company.
  2. Technical Trades who use stock charts to determine a good entry.
Often retail traders totally forget about the fundamentalists or consider them unimportant. However since they dominate the market being aware of their activity is important. How and when they are buying helps you understand what the technical patterns are telling you or are revealing.

To be an excellent chart reader you must be aware of the fundamentalist component and use indicators that not only evaluate price but also evaluate quantity, as it is in quantity indicators that fundamentalist activity is best displayed on the chart.


Chart 2

IBM has been moving up steadily for some time but is not at market saturation. Rather it is building a foundation for new technology and growth. The recent sideways trading range pattern for IBM was due to the heavy acquisition mode it has been in for over a year now.

The TechniTrader® Quiet Accumulation TTQA indicator in the bottom chart window, shows that even during the trading range period the buy side institutions held.

When looking at a chart you must always ask yourself, “Who is in control of price?” Which of the 9 market participants control price at this level? What is their intent for buying or selling? How do they affect price action near term?

When you have the answers to these questions determining whether a stock is topping or simply correcting, or bottoming and preparing for the next stock value increase becomes easier.

Technical patterns can tell a retail trader far more than most traders realize. By understanding the driving force behind the different patterns, you will have a far better analysis of what the stock will do next.

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.

Disclaimer: All statements, whether expressed verbally or in writing are the opinions of TechniTrader, its instructors and or employees, and are not to be construed as anything more than an opinion. Student/subscribers are responsible for making their own choices and decisions regarding all purchases or sales of stocks or issues. At no time is any stock or issue on any list written or sent to a student/subscriber by TechniTrader and its employees to be construed as a recommendation to buy or sell any stock or issue. TechniTrader is not a broker or an investment advisor it is strictly an educational service.

Wednesday, September 19, 2012

New Bottom Formations

MetaStock SPRS Series - Week 86 - TechniTrader® Stock Discussion for MetaStock Users - New Bottom Formations - September 17, 2012
By: Martha Stokes C.M.T.


With the Market Structure changes that have occurred in recent years, many old-style technical patterns are disappearing and new patterns are emerging.

These new patterns are most obvious on the short term trend. This is also the trend time frame that most retail traders use to trade short term for monthly income.

One big change recently is how bottoms form.

Most retail traders have learned about the W bottom, Triple Bottom, V bottom, Bowl shape aka cup, and the inverted head and shoulders pattern.

A common bottom that is occurring these days is a basing pattern where the stock moves sideways for a period of time building more of a platform, than wide sideways pattern that creates the W’s, triples, and Inverted Head and shoulder bottom formation.

This is a sideways pattern that is wider than a consolidation, but is not a trading range as is normal to create the technical bottoms you have learned.

A platform is distinctly different than a Trading Range.

A Trading Range has varying highs and lows with numerous inter range lows and highs. The inconsistency of the trading range sideways action makes it extremely challenging to trade unless the range is very wide, 10-100 points as an example.

The Platform is often a “gottcha” for swing traders who are either trying to trade the short term runs within the platform, or are still trying to sell short even while a bottom has commenced. The problem that faces most traders is the fact that the basing platform, doesn’t resemble any bottom they have learned from the older style technical analysis so prevalent around the internet.

Since most traders are using out-dated technical analysis as the basis for their trading, they are handicapped and have lackluster results that are disappointing and frustrating.


Chart 1

FFIV is a technology stock. It is also a leader in the Cloud Industry which is causing more giant to large sized funds to double up on its stock. It had a period of selling earlier this year as it reached a new high. Now it is forming a base as its bottom. There may be sufficient points for this $100 dollar stock to trade the runs within the platform however, at some point this stock is going to move suddenly. Indicators show quiet accumulation along with intermittent HFT activity.


Chart 2

TTVA shows it reached an extreme pattern of volume before commencing this basing bottom formation. Meanwhile money has been flowing into the stock steadily over the summer.


Chart 3

The TTRSI shows that the base is starting to gain energy and is starting to compress. Compressions tend to lead a sudden move.


Chart 4

The weekly chart shows that the base is forming at a prior low well above the severe, extreme low of the 2011 dump when politics caused stocks to fall abruptly.

Basing patterns for bottoms are becoming more common. They form at prior lows that are higher than a severe low, especially if that severe low was caused by something beyond the scope of the company and its business.

Basing patterns often show energy and bias within the pattern exposing giant fund activity before the stock moves. Typically it is High Frequency Trader activity that causes the sudden move out of the base.

Bases can last for several weeks to months. The key is to have all the indicators that expose dark pool activity lining up.

Dark Pool activity is very easy to see on the charts because of how they buy into a stock, accumulating incrementally within a tight range over an extended period of time.

This consistent buying pattern is what creates the basing bottom formation. Since Dark Pools funds can control price precisely, the wider Ws, Triples, H&S, do not form as easily when the Dark Pools are active.

Learning the new subtle changes to technical patterns is crucial for your success as a retail trader. Your advantage in the market is your ability to see the footprints of the other market participant groups, and then trade accordingly.

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.

Disclaimer: All statements, whether expressed verbally or in writing are the opinions of TechniTrader, its instructors and or employees, and are not to be construed as anything more than an opinion. Student/subscribers are responsible for making their own choices and decisions regarding all purchases or sales of stocks or issues. At no time is any stock or issue on any list written or sent to a student/subscriber by TechniTrader and its employees to be construed as a recommendation to buy or sell any stock or issue. TechniTrader is not a broker or an investment advisor it is strictly an educational service.

Wednesday, September 12, 2012

Main Article: MetaStock Monitor SEPTEMBER-OCTOBER 12

Main Article

How to Find, Track, and Trade with the Smart Money: The Critical Nature of Volume - Part One

Contributed by Jeffrey A. Kilian, Chief Market Strategist and Founder of The Inside Technician

As the market would have it, most participants are wrong in their trading decisions and therefore lose money when they invest or trade. We (as professionals who work in the business every day) know that even though what most dedicated people do is correct.......sometimes they miss the critical ingredient known as "volume".

Volume is the catalyst behind the most explosive and profitable moves in trading any instrument within any market place, and to this day still remains the number one factor that determines the probabilities of future price directional price movement. Volume is the number of shares or contracts traded over a calculated period of time. The result of those volume numbers must then be used to determine the current and future Supply and Demand ratio of what we are analyzing.

A professional trader will focus his or her attention on the Smart Money Volume. This volume is the most important type of volume. It is created by the people who actually move The US Markets and more importantly, The S&P 500 E-Mini futures from one level to another. These are the heavy market participants including off shore hedge funds, US based institutions, major market makers along with specialists on the trading floor who will orchestrate the mechanics behind the new price move, before the general public is aware of what is about to happen.

The effect of what the Smart Money does now creates a new level of supply or demand that was previously non-existent.

Where the ratio of supply and demand changes, so do the opportunities to invest or trade in anticipation to make money (whether long or short). However, without a sufficient amount of accumulated volume incorporated into the analysis of our trading decisions, we leave a reward to risk ratio on the table that is unacceptable. Let's examine the various scenarios where volume, especially a near historical volume spike or accumulated volume levels, plays a critical role in the end result of being on the right side of the markets and ultimately, a winning or losing position. Understanding that our US Markets are highly correlated, and that we must know the current state of our Markets, we begin with a chart of the Dow Jones Industrial Average.


Chart 1

The Basic Scenarios of Volumes True Colors

  • Excessive volume levels occurring at major turning points in the S&P 500 E-Mini Futures Market, stocks, subgroups, parent groups, their assigned Sectors, and the Major Market indexes, gives us the opportunity to get in at the beginning of a change in direction with the potential for profit that no other trading method can offer. For example let's consider the following example:
    • Trader A with 5 years experience finds a real time S&P500 E-Mini futures trade set up from a free or low cost internet program that has several favorable indicator formations and increasing positive volume. Trader A has considerable experience using Technical Analysis and believes there are strong possibilities for short term upside potential price movement. Trader A now analyzes the current state of the overall market and concludes that his/her timing is correct and now decides to trade the 5 E-Mini contracts in isolation. Trader A selected and traded a sub standard trade because of a critical failure to make a relative comparison between the E-mini trade that he/she will make and the "daily price levels in combination with proper volume analysis."



Chart 2 

  • Successive volume spikes or sustained and consistent volume levels allow the trend to continue in the same direction until the trend has exhausted itself.
  • Where short term corrections within an uptrend present themselves, volume will have temporarily dried up and prices will stall and reverse because of the inherent change in the demand/supply ratio- supply has now become clearly in control. This normal correction will last a short period of time until more buying pressure shows up again in the form of volume to act as the engine behind the renewed continuation of the uptrend.
  • The exhaustion of an uptrend is almost always evidenced by a drying up of volume leading to a reversal pattern where the entire process is then repeated but this time leading to a down trend.

Critical Volume Levels Relative to Key Indicator Formations Provide the Confirmation 

  • RELATIVE COMPARISONS of current volume levels to/past levels provide confirmation of Smart Money accumulation or distribution.
  • MACD and Volume relative Comparisons.
  • MONEY FLOW INDEX and Volume relative comparisons.

As traders we have a clear choice in front of us to either choose to trade the candidates that have significantly higher volume levels or not. In choosing average volume level candidates, the statistics will quickly point to substandard trading results. This is a direct result of a lack of serious interest in the security or futures contract for the simple reason there is no real Smart Money buying behind it. No professional trader would make a valid risk to reward calculation before a trade is made without including volume as a serious portion of that equation. 



Chart 3 

The MACD is one of the best indicators to analyze and make trading decisions because of its inherent ability to confirm the trend has now officially changed from one direction to another. Although at times it may lag price movement, its most powerful attribute is the confirmation it will provide us when prices achieve a new pivot point high or low or even a new base formation, and then move up or down from there into a new direction. This provides the confirmation that the probabilities of a new trend are present and we need to start paying serious attention to the trade on our watch list. 



Chart 4 

IF MONEY FLOW is now included in our end of day analysis to determine the validity of the volume that we have now identified; it can provide us with a looking glass effect to determine whether or not that volume is in fact a real institutional and insider buying or not. Can you imagine how your confidence level would change knowing that what you have found has the people behind it that actually move prices from one level to another? This is the skill level that we must invest in and train ourselves to arrive at, now working every day in anticipation of finding, tracking, and trading with these Smart Money market players.

With all the trading platforms available today is it easy to be swayed off course. By taking the necessary time to educate yourself on the most important aspects of professional trading it becomes second nature to spot turning points leading to the possibilities of a new trend, the tracking of a trend and most importantly a futures contract or a stock that is waiting for a substantial upside move. The critical nature of volume in this case being "a historical volume spike or accumulated volume level identified at precisely the right time" guides you to the true high probability trade vs. Trader A who will continue to make substandard trades and never know the inner workings of what really moves prices from one direction to another. The obvious question to ask yourself now becomes have you been trading on the A side or the B side?

Waiting and trading with the correct volume level will put the risk/reward ratio greatly in your favor. Your best positional advantage as a trader or investor is patience. It is always better to wait until a significant or even historical volume level arrives before putting on a serious position. This basic tenant has applied to the majority of the biggest moves in the history of the securities market and still stands today as the mark of a professional trader. Volume is our trading edge and puts it all in our favor. Once we learn how to employ its edge, we cross over to an entirely different level of trading and investing.

You can learn more and subscribe to "THE NIGHTLY MARKET INTELLIGENCE REPORT"™ by clicking here.

About Jeffrey Kilian

Jeff Kilian is a 13-year veteran trader/technical analyst who uses only technical analysis to make all his own trading decisions. His communication skills are what clearly set him apart from others in the educational side of the securities business, allowing him to teach in a clear and easily-understood manner.

By following a structured, learnable, and repeatable process, his clients learn in a fraction of the time what it takes to become a real life professional and profitable trader.

Support Tip: MetaStock Monitor SEPTEMBER-OCTOBER 12

Support Tip

How can I backup my formulas (Indicators, Experts, Explorations...)?
Contributed by MetaStock Support

As you know, backing up all of your work is very important (especially on a computer). You can backup your formulas, indicators, experts, and explorations in MetaStock with a few simple steps. Here's how:

To backup formulas in MetaStock:

1) First, open MetaStock. Then, click on the "Tools" header, followed by the "Indicator Builder".


2) Click "Organizer".


3) Click "Export".


4) Highlight the formula(s) you want to back up. You will be asked which custom indicators, system tools, explorations, and experts you want to back up on the following screens. Select ALL that you wish to back up.


5) Specify the location you wish to export the files to. You can password protect them on the next screen (if you wish). If you do, make sure you choose a password you will remember! This will create new files with the appropriate files in the folder you specified. This will not over-write any existing files, so the folder specified must not have any other formula files in it.


6) If you choose to enter a password, do it here but make sure you remember it!


7) The formulas you exported should appear in the folder you directed them to in step number 5.


To import files to a system:

1) Follow steps 1 and 2 from backing up formulas. For step 3, choose "import" rather than "export".


2) Specify the location you wish to import the files from.


3) All the formula files, experts, explorations, and system tests will be read from and added to the current location in MetaStock. If you already have formulas, experts, explorations, and system tests of the same name in MetaStock, you will be asked if you want to replace them. If you say yes, the import will finish, overwriting the formulas of the same name. If you say no, the import will be halted with nothing being added.

Power User Tip: MetaStock Monitor SEPTEMBER-OCTOBER 12

MetaStock Power User Tip

Analyzing Trading Systems
Contributed by Breakaway Training Solutions


When developing a system, one of the best ways to objectively review the results of the system is to test it over a large number of securities. In this two minute video, join Kevin Nelson as he shows you how analyze trading system results.

http://www.learnmetastock.com/FreeStuff/FreeVideos/TestExcel/TestResultsExcel.html

For more MetaStock training, make sure to visit Breakaway Training Solutions at www.learnmetastock.com or email Breakaway Training Solutions at admin@learnmetastock.com.

About Kevin Nelson

Kevin Nelson is the founder of Breakaway Training Solutions, Inc. He has spent the last 17 years becoming an expert on MetaStock software and a serious student of technical analysis while working for MetaStock. Prior to joining MetaStock in 1993, Kevin was a stockbroker for a well-known NYSE firm. In his role as Sales Manager at MetaStock, Kevin interacted extensively with MetaStock customers via phone, webinars, and public appearances. His experiences while working at MetaStock have enabled him to gain a keen understanding of the needs of technical analysts worldwide. While with MetaStock, Mr. Nelson was a featured presenter for four years. During this time, he traveled the U.S. introducing the MetaStock program to thousands of people and teaching them how to use its many features. His easy-to-understand approach is considered by many to be the best in the industry.

©Breakaway Training Solutions, Inc. 2012

Monday, September 10, 2012

Gaps Continued - 09.10.12

MetaStock SPRS Series - Week 85 - TechniTrader® Stock Discussion for MetaStock Users - Gaps Continued - September 10, 2012
By: Martha Stokes C.M.T.


Last week we discussed breakaway gaps and island continuation gaps, both with upside action.

The chart for this week was VC: Visteon Corp, an automotive parts store that is a recent IPO.

This stock has been working on its IPO bottom. The gap is significant because it marks the completing of the IPO bottom.


Chart 1

Although it may appear to be just an everyday common gap due to the small size of the gap, it actually has gapped over a resistance level. Hence, it is another breakaway gap pattern.

Breakaway gaps do not fill usually. Sometimes they may fill partially but most of the time, a gap like this one on an IPO that is bottoming and has high volume activity, tends to behave differently.

In this instance the current price action is a very tight consolidation.

When you see this kind of price pattern with high volume, small candles, and with TechniTrader® Quiet Accumulation TTQA green, then the pattern is indicating that large funds control price.

The largest funds can control their price far better than they could a few years ago due to the increasing use of Dark Pools. These over-the-counter transactions are not displayed intraday on the limit order books at the exchanges.

HOWEVER these orders are part of the overall data that feeds into your MetaStock Charting system end of day. So even though intraday traders do not see these giant transactions firing off during the day, these big purchases are still recorded through the National Clearinghouse as required by law.

So we have a quiet accumulation pattern going on where some funds are entering with very controlled price orders.

These patterns are important for retail traders to be able to identify because often after the Dark Pools have acquired these stocks, IF High Frequency Traders find out, they start buying. The HFTs tend to buy one or two days in a big move.

This is something retail traders can exploit IF they understand the patterns that trigger the automated HFT orders.

So you have two different market participant groups using automated order processing.

One uses Dark Pools or over-the-counter transactions off the exchanges intraday books.

The other uses automated orders on the exchanges trading a 1000 times per second or 60,000 times a minute speed wise.

Understanding what is occurring behind the price patterns is crucial.

By the way, did you know that YOU use a Dark Pool transaction whenever you trade with your online broker. Yes, that is an empirical FACT that the SEC just recently investigated and discovered.

I will be talking about what this really means for retail traders in my upcoming radio talk shows.

Tune in to find out more.

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.

Disclaimer: All statements, whether expressed verbally or in writing are the opinions of TechniTrader, its instructors and or employees, and are not to be construed as anything more than an opinion. Student/subscribers are responsible for making their own choices and decisions regarding all purchases or sales of stocks or issues. At no time is any stock or issue on any list written or sent to a student/subscriber by TechniTrader and its employees to be construed as a recommendation to buy or sell any stock or issue. TechniTrader is not a broker or an investment advisor it is strictly an educational service.

Wednesday, September 5, 2012

Gaps Continued

MetaStock SPRS Series - Week 84 - TechniTrader® Stock Discussion for MetaStock Users - Gaps Continued - September 3, 2012
By: Martha Stokes C.M.T.


Last week we studied KORS which had a gap at that time. This was not only a breakaway gap but it was also an island continuation gap which is a very strong confirmation of the upside action.

The island continuation gap occurs when a stock gaps up often a breakaway gap, then moves sideways for several weeks to several months and then gaps up again.

To be a true breakaway gap, the price must start in a consolidation or sideways pattern and must be below a resistance level. The breakaway gap itself, moves above and beyond the resistance and is that is why it is called a breakaway gap. It breaks away from the resistance to either continue a move upward or reverse a move.

The island gap is a very strong move because it confirms the upside action after a lengthy sideways pattern. See the KORS chart below:


Chart 1

Continuation upside gaps tend to occur mostly during platform market conditions when the market is moving sideways for long periods of time often for entire quarters, then it moves up on earning s news. This is a value- oriented market rather than a speculative market.

The continuation island gap can occur several times during a long term run.

It is important that you are able to recognize instantly the different kinds of gaps as some fill completely, some partially, and some do not fill at all.

By understanding which gap has formed you are better prepared for what price will do over the next few days. Island continuation gaps seldom fill as most of the time they are also breakaway gaps which seldom fill. The energy behind the move up tends to continue over the next few days rather than shifting to a correction.

Below is an entirely different kind of gap in the VC chart. What type of gap is this? Will it fill or will the stock continue moving upward? What market participant caused this gap?


Chart 2

Summary: We are going to see plenty of gaps this fall as the energy of the market increases due to more market participants trading and investing in the stock market. Already we have seen a surge of mutual fund investors buying mutual funds which allows these funds to buy more stocks. This has been occurring over the summer when most retail traders are assuming the markets are not doing much since they follow the indexes rather than tracking the institutions.

Therefore being able to identify not only what gap formed but when a gap is likely form due to quiet accumulation patterns prior to an event.

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.

Disclaimer: All statements, whether expressed verbally or in writing are the opinions of TechniTrader, its instructors and or employees, and are not to be construed as anything more than an opinion. Student/subscribers are responsible for making their own choices and decisions regarding all purchases or sales of stocks or issues. At no time is any stock or issue on any list written or sent to a student/subscriber by TechniTrader and its employees to be construed as a recommendation to buy or sell any stock or issue. TechniTrader is not a broker or an investment advisor it is strictly an educational service.