Use Dark Pools Chart Patterns for Higher Profits
How to Calculate the True Cost of Your Trading
To use Dark Pools Chart Patterns for higher profits is an area of Technical Analysis that has not made its way into most stock market books, articles, and information available on the internet. The reason why Dark Pool technical patterns aka footprints are not yet part of the Technical Analysis standard of teaching is that these are NEW chart patterns.
Dark Pools did not exist in the 1980’s, 1990’s, or early 2000’s decades. These are relatively new trading venues for the giant Institutions who demanded obscurity, due to the rise of the High Frequency Trading Firms HFTs in the mid 2000 decade after the switch from fractions to decimals. Basically HFTs morphed out of the Small Order Execution System SOES Bandits, during the rouge Floor Traders era.
Just as an interesting note, did you know that the Flash Crash of May 2010 was caused by an error in an Institutional order? Instead of using a Time Weighted Average Price TWAP order, the fundamental trader used a Volume Weighted Average Price VWAP order. VWAPs trigger on rising Volume, which then triggers more and more orders. TWAP is the appropriate order for Quiet Rotation™ and Quiet Distribution, as well as Quiet Accumulation.
A Retail Day Trader can no longer see the large lot activity on their level 2 screens, as nearly all large lots are transacted nowadays on the hidden venues called Dark Pools which are used by giant Institutions. However what can not be hidden, is the easy to identify Dark Pool footprints on the stock charts.
There are many different types of Dark Pool footprints the giant Institutions leave on charts, due to their preferred professional Order Types.
One of the more common footprints happening is the “Basing Bottom Formation,” which is a brand new type of bottoming formation. In order to use Dark Pool Chart Patterns for higher profits, the key element in this pattern is to identify the Dark Pool Quiet Accumulation before the stock runs up with an early entry.
However early entry can be problematic if a trader is using Price and Time Indicators, and both Momentum and Price Oscillators. You may get an early crossover, but then the stock moves sideways up and down in a choppy pattern that causes whipsaw exits and losses.
Another problem getting in early is that many Retail Traders wait and wait for signals from Momentum Indicators, which gets them into the stock very late in the run. This means instead of a high profit trade, the Retail Trader takes a meager profit.
True profit is one big part of trading that most traders fail to include in profit evaluation. How to calculate the true cost of your trading is considering more than just the cost of Charting Software, Broker fees and charges, and possibly subscriptions to Newsletters.
To accurately calculate whether a trade is profitable or not, you must also include ALL of the normal business expenses for Trading as a Business. Otherwise you are deluding yourself as to your profitability in trading.
Trading as a Business includes the following:
1. You MUST pay yourself something for your time. How much could you make an hour, working for a corporation in your field of expertise or your degree? That is the minimum amount you should use as a base for trading expense as an hourly wage.
2. You must also include the average losses. You must take an average of your losses each month and divide it into your trades per month, and subtract that loss from your profits of every profitable trade.
3. Other expenses include your computer, printer, and other hardware depreciation.
4. In addition there is the office space in your home, electricity, internet, phone, and office expenses such as paper, pens, and journals.
5. Finally add up the cost of time attending webinars, the reading articles, and also if you pay a a simulator fee.
If you did an accurate and thorough calculation of your TRUE trading costs, you would find that taking a .25 cent profit on a 100-1000 share trade is not at all profitable. You are actuality losing money every time you trade.
So learning how to enter a stock trade earlier based on recognizing a Dark Pool Buy Zone™ is crucial, and can turn your trading hobby into a career that all your friends envy and admire.
Martha Stokes CMT
TechniTrader technical analysis using a MetaStock chart, courtesy of Innovative Market Analysis, LLC dba MetaStock
Instructor & Developer of TechniTrader Stock and Option Courses
This weekly stock discussion is sponsored by TechniTrader.com a MetaStock® Partner
Copyright ©2016 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.