Martha Stokes CMT discusses how to Track Large Lot Institutions...
TechniTrader® Stock Discussion for MetaStock® Users: "Tracking The Large Lot Institutions"
MetaStock® SPRS Series - Week 135 – September 6, 2013 - MetaStock Spatial Pattern Recognition Skills Series written by Martha Stokes CMT
Main challenges retail investors and traders face today, is figuring out when High Frequency Traders are going to suddenly appear and when Dark Pools are quietly buying or selling.
There is a distinct pattern to tracking the Large Lot Institutions that repeats over time, and here it is step by step:
- Dark Pools are buying into a stock. Their “interest” in a stock is no longer seen on the market maker limit books prior to the execution of their trade. These are giant investors buying for the long term, most of the time.
- Professional and Floor traders who are closer to the action of the Dark Pools jump in for short term trade action. Some are Intraday traders, while others are Swing traders.
- High Frequency Traders HFTs discover the Dark Pools either via a notification once the Dark Pools have bought what they want which is a news alert, viewing the transactions posted after clearing, or due to a ripple in volume. The ripple in volume occurs when a Dark Pool order can’t be totally filled on the ATS platform, so some of that order is filled on the exchanges.
- Smaller funds chase the HFTs due to news, causing price to surge with emotional responses to the HFT action.
- Retail traders chase the smaller funds ending up getting into a stock, just as a whipsaw or reversal occurs due to sudden profit taking by the HFTs.
This pattern of buying by these Large Lot Institutions is repeated over and over these days, often frustrating retail traders who unwittingly get in the way or buy unaware of who is controlling price at that time.
The patterns are in the chart candlesticks, and every retail investor and trader needs to learn them. Part of the pattern is in price, the other is in volume and in large lot versus small lot indicators.
The first candle indicated by the red arrows is HFTs which is evident in price, volume, and TechniTrader Quiet Accumulation TTQA.
The green vertical rectangle is Dark Pools and Pro Traders. Dark Pools are accumulating, while Pro Trades are trading short term. The small green horizontal rectangle is the high price range or top level price for the quiet accumulation buyers. They will not buy any higher than this which means Pro Traders are going to take profits.
This brings the price down to the support low, which is the trigger level for more quiet accumulation. Meanwhile quiet accumulation is going on, while uninformed retail traders are trying to sell this stock short. They struggle to push price down but due to lack of numbers, they are unable to control price.
Then as quiet accumulation ceases HFTs gap down price at market open, then drive it down on an inconsequential retail news item, and quiet accumulation drives it right back up.
But smaller funds chase HFTS trying to sell or sell short. It goes deeper this time as quiet accumulators wait, then start buying again. This is discovered by the HFTs which gap price up.
Learning to read charts properly is not just using an indicator cross over or a candlestick pattern. Relational Analysis must be applied to really understand who is in control of price. If you can recognize the Large Lot Institution group controlling price and you know which groups chase price, then you will have a much stronger understanding of what price is going to do near term. In addition recognizing the levels where quiet accumulation will trigger because these are automated orders, will help you avoid being on the wrong side of the trade.
Being on the wrong side of the trade aka trading against the Large Lot Institutions is the main reason retail traders have so many losses.
To learn more about High Frequency Traders, sign in to view our free webinar titled "Ride the Velocity Express of High Frequency Trading Action Using MetaStock" CLICK HERE or http://goo.gl/IMJlgF
Martha Stokes CMT
Member of Market Technicians Association
Master Rated Technical Analyst for Decisions Unlimited, Inc.
Instructor and Developer of TechniTrader® Stock Market Courses
For additional training visit http://technitrader.com
This Stock Discussion and Training Lesson is sponsored by TechniTrader.com
©2013 Decisions Unlimited, Inc. dba TechniTrader® All Rights Reserved.
Disclaimer: All statements, whether expressed verbally or in writing are the opinions of TechniTrader® and its instructors 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.