Friday, May 23, 2014

TechniTrader Weekly Stock Review for MetaStock Users - SYMC: Dark Pools at the Bottom

One of the most difficult things for traders to do is to determine when a bottom has started after a correction is underway.  Many times, traders are still attempting to sell short when the giant lots that use Dark Pools for their orders start to move into a stock to commence the bottom.


Nowadays, true bottoms are started by Dark Pools as these giant-lot investors move in quietly, unnoticed by the intraday, HFT, and retail trader. Their buying power is unmatched by all other market participants.


Although these large lots are invisible on the exchanges, ECNs, and retail broker systems during the trading day, every order for every stock is required by law to be cleared through the national clearing houses.  This data is then sold to Data Feed Providers such as BATS or Reuters or MorningStar, who then sell this collected, consolidated data to other vendors, market participant groups, etc. That means that your End-of-Day charts contain the Dark Pool activity.


Their footprint is there to see on the charts IF you learn what you are looking for.


Dark Pool Footprints: Your Advantage Over HFTs


SYMC has the classic pattern called “Shift of Sentiment.”  First, there is the huge volume spike to the downside with a huge gap down pattern on high red TT Quiet Accumulation bars.  This usually precedes the Dark Pool entries.


Dark Pools use special orders that control the buy zone for their large lot activity.  HFTs are unaware that the Dark Pools are quietly accumulating and continue to sell short for a period of time. HFTs are not human traders but are algorithms that run via a computer, sending orders to the exchanges at millisecond speeds.

Often the HFTs are on the opposite side of the trade at a bottom.  The HFT has to change the algorithm to an upside trigger action once the computer recognizes or identifies the giant lot orders of the Dark Pools.




Most retail traders use MACD, Stochastic, or Bollinger Bands® as their primary indicator.  Unfortunately, NONE of these indicators reveal the Dark Pool quiet accumulation that creates bottoms.  With these indicators, false upside entry signals and false sell short entry signals occur frequently as HFT selling collides with Dark Pool Accumulation as the bottom commences.


Below, MACD shows a buy signal crossover after an engulfing white (aka bullish engulfing) just before the final low. But unfortunately, the MACD crossover signal is a false entry pattern and the stock gaps down the next day. In fact, MACD lags behind price often on this chart. And it doesn’t tell you where the Dark Pools are buying or if HFT action is in control of price. If you had used MACD or its trading system that gives red light/ green light signals, you would have been whipsawed out of SYMC many times at a small to large loss. Decades ago, MACD was an amazing indicator, but now it fails more and more often.

Bollinger Bands compressed at this time, but this indicator alone doesn’t tell you the direction the stock will take next.



In the chart below, later in the bottom development that TT Quiet Accumulation identifies clearly, Bollinger Bands are compressing to indicate a breakout pattern is imminent; however, Bollinger Bands do not indicate what direction the stock will take, or the momentum or lack of momentum behind the imminent breakout.  MACD is neutral, telling you nothing about this imminent breakout.  Both indicators lack essential data you need to know in order to determine what the stock’s price will do next because their formulas use only price data.


Hybrid indicators reveal far more information about who is in control of price AND the direction the stock will take out of sideways patterns such as bottoms.

Summary:  

If you really like the popular price indicators like MACD, Bollinger Bands or Stochastic, then consider adding a leading hybrid indicator such as TT Quiet Accumulation. Otherwise, your indicator analysis will lack the critical information you need to succeed in today’s new market structure where Dark Pools and HFTs control price much of the time.

To be successful in trading today’s stock market structure that has multiple venues, speeds of execution, and vast differences in lot size, investment funds, and specialized orders for each market participant group, you must adapt and use indicators that will reveal the patterns of the most influential market participants.

Without leading hybrid indicators written specifically for the current market conditions where giant lots can move quietly in and out of stocks without disturbing price, you cannot attain the high profits of those traders who are able to detect a bottom early with the correct indicators for doing so.


Trade wisely,
Martha Stokes CMT

Chartered Market Technician
Member of Market Technicians Association
Master Rated Technical Analyst for Decisions Unlimited, Inc.
Instructor and Developer of TechniTrader® Stock Market Courses

Charts courtesy of MetaStock®

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