Friday, November 22, 2013

TechniTrader Weekly Discussion: “Market Voids - The Invisible Sink Holes for Retail Investors and Traders”

MetaStock® SPRS Series  Week 146 – November 22, 2013 - MetaStock Spatial Pattern Recognition Skills Series  written by Martha Stokes, CMT


Market voids were once rare events, now are occurring more often as the use of Dark Pool  ATS platforms increase.  Market voids are when the most important and influential long term market participants stop buying stocks and sit on the sidelines.
When this happens suddenly there is a massive void of buyers, who typically buy giant share lots of 100,000 – 500,000 at one time via Dark Pools.  The cessation of the giant and large funds buying is a buy side phenomenon that is not mirrored in bear markets.  It occurs in Bull Markets and is uniquely tied to speculative trading activity.
The problem for most retail investors and traders is that this void occurs without warning and creates whipsaw action, gap downs, and slip-slide price action. Often these sink holes appear just after retail investors or retail traders have rushed in to buy a stock due to news or other good information about a company.
Voids are a primary cause of losses for retail swing traders, day traders, and at times position traders.  Therefore understanding why they occur, how long the void can and will last, and how to recognize that a void is beginning, helps traders make better decisions to circumnavigate the sink hole before they are swept into it for a big loss trade.
Unfortunately all Market Indicators such as High/Lows, Market Breadth, and Advance/Decline do not reveal market voids in advance. Rather these indicators all lag due to the outdated formulas that were written prior to the Dark Pool ATS platforms.
The ideal way to discover potential market voids before they occur is to use a group of Scans to reveal the momentum bias and other factors.  Scans developed to expose market condition analysis is a leading indication of when a void is about to occur. This gives retail investors and traders a heads up that buying stocks will be a much higher risk during the void.
In early November a void pattern appeared on the TechniTrader Market Condition Analysis Scans.  A few days later the S&P500 had a sudden down day, please see the chart below.  


Nothing in the candlesticks specifically exposed that a big down day was coming.  Many retail traders were on a buying spree. Many retail investors were rushing to buy stocks as news spurred them back into the markets. The one down day caused many whipsaw trades.   The run down was not due to High Frequency Traders, market makers, or any of the commonly blamed factors it happened because those giant and large funds that are the largest buyers stopped buying for a few days.  
Many new retail investors and retail traders feel that a charting program is an expense they do not need. Instead they opt for free charting services and online broker charts, which were never designed to be used as trading charting programs.
By not having the proper tools, new retail investors and retail traders actually increase their risk of losing money. They pinch pennies and throw away dollars of profits, and have more losses because they are not using proper investing and trading tools.
Scans that expose when a void is about to occur help protect your capital and profits.  To build scans that can do this requires the proper charting software tools. Otherwise you will find yourself suddenly in a sink hole, losing money rapidly and wondering why that great buy signal didn’t work.
Find out what Students say about TechniTrader training at http://goo.gl/enPil1
Trade wisely,
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
MetaStock® Partner


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