How To Use V Formations For Swing Trading
The automated market has many unique patterns that form due to the changes in the market participant groups, the various trading venues, and order processing systems. Learning to identify where a stock is likely to suddenly experience Dark Pool giant lot buyers during a downtrend, can help technical traders enter a reversal rally sooner to gain higher profits.
This requires recognizing where the Buy Side Institutions buy zones using Dark Pools are, or have occurred in prior months. During a sudden sell down triggered by High Frequency Traders a stock can plummet in price quickly, it also generally will rebound and run back up quickly especially if the sell down was HFT triggered and the company is doing well. “Sympathy moves” as these sell offs are called, occurred many times during the most recent correction.
AXP is a good example of a big blue chip firm that sold off more in sympathy, or due to the bulk of the Dow 30 and S&P500 stocks, which AXP is a member of both indexes, and less to do with company fundamentals.
The chart example below of American Express Co. (NYSE:AXP) dropped at a vertical angle of descent. The most important candle that formed was the extraordinarily long tail on 10/15/14 which was the initial reversal signal. Often times with HFTs triggering, a second reversal is required before the HFTs algos figure out that Dark Pools are moving in to buy. For AXP the indecision day candlestick was on 10/16/14, and was a confirmation that this stock was poised for an upside move.
The extraordinarily long candle of 10/15/14 formed precisely at a prior buy zone of the Buy Side Institutions. When the stock dropped into the buy zone, this triggered automated orders which drove price upward resulting in a long tailed reversal candle pattern. The following day HFTs attempted to sell down the stock again, but failed a second time. The HFT algos shifted to an upside automated order the next day and the price moved up quickly.
The chart example below shows where the Buy Side Institutions buy zone was previously and price stopping there to reverse.
In the middle and bottom chart windows of the chart example below other huge signals which clearly showed that AXP was going to reverse quickly, were the TechniTrader Volume Accumulation TTVA and TechniTrader Flow of Funds TTFF indicators. V bottom formations on these two indicators provided early signals that the stock was not continuing down, but instead was going to reverse. Whenever these indicators form a V bottom, a reversal is imminent.
These are Leading Indicators and they help traders enter sooner for higher profits.
Seeing a stock suddenly reverse and run up after it had just plummeted many points, doesn’t have to be frustrating for the technical trader. By learning to read both Candlestick Patterns as well as Leading Indicators, technical traders can enter these reversals before the stock runs up to its prior levels.
Candlesticks Patterns and Leading Hybrid Indicators are essential tools for technical traders if they want to be successful in today’s automated marketplace. There were hundreds of stocks that had similar V or U shaped velocity bottom action in recent months. Learning when and how to enter sooner will provide technical traders with a huge advantage and much higher profits.
Martha Stokes CMT
Instructor & Developer of TechniTrader Stock and Option Courses
This weekly stock discussion is sponsored by TechniTrader.com a MetaStock® Partner
©2014 Decisions Unlimited, Inc. dba TechniTrader. All rights reserved.
TechniTrader is also a registered trademark of Decisions Unlimited, Inc.
Disclaimer: All statements are the opinions of TechniTrader, its instructors and/or employees, and are not to be construed as anything more than an opinion. TechniTrader is not a broker or an investment advisor; it is strictly an educational service. There is risk in trading financial assets and derivatives. Due diligence is required for any investment. It should not be assumed that the methods or techniques presented cannot result in losses. Examples presented are for educational purposes only.