Monday, November 14, 2011

MetaStock SPRS Series - Week 42 - TechniTrader® Weekly Discussion for MetaStock Users: Understanding Support Mechanisms Created by the Market Participant and the Institutional Investors

MetaStock SPRS Series - Week 42 - TechniTrader® Weekly Discussion for MetaStock Users: Understanding Support Mechanisms Created by the Market Participant and the Institutional Investors - November 14, 2011
By: Martha Stokes C.M.T.

All retail traders need to understand how the 8 different Market Participants impact stock prices and price action. Sure you can learn to use MACD or Bollinger Bands and do okay, but if you are truly serious about making profits in the market then you also need to understand why price behaves the way it does.

When you understand why price behaves a certain way, due to who is investing or trading the stock, then you will find more opportunities to trade, and have a significantly higher degree of success.

The most important of the 8 Market Participants is the Institutional Investors. These are giant mutual funds managers and they influence price in a reverberating manner.

However, their buying does NOT move price. Mostly you will find institutional investors (who often use Dark Pools for their transactions) buying into a stock in a fairly tight sideways action.

This is why you need to really be able to read and interpret what kind of sideways action is underway and to read the TTQA indicator which reveals their footprint of incremental buying.

Chart 1

The chart above shows quiet accumulation by the Institutional Investors. These savvy giant funds managers like to move into stocks without anyone knowing about their buying. They can buy huge share lots, millions of shares via Dark Pools provided by most of the exchanges and by independent Dark Pool service companies.

Their buying is always a controlled bracketed order, NOT a limit order. When the Institutional Trader hears about the Institutional Investors accumulation, then price moves with velocity, on huge volume and huge TTQA surges that fade within a day to a few days.

These patterns are distinctly different and you need to be able to see these in order to take advantage of the big moves as a swing, day, or velocity trader OR if you prefer to position trade which is a longer hold with lower risk, and much higher ROI than day trading.

We are going to see more and more of this kind of pattern because the market is coming out of a short term bottom and shifting to a value oriented market condition.

Support Mechanisms that come into play in these quietly accumulated stocks trigger more buying by the huge institutions after a speculative run up from the Institutional traders.

The reason this accumulation is automatic is the fact that the giant funds use trigger orders in a bracketed narrow price range. So as this stock slipped down into that price zone, buyers moved in quickly forming the long tailed candle and the white candle the next day.

Some traders made the wrong assumption that this stock was going to be a good sell short opportunity due to the news about Italy on the day the stock moved down Wednesday. And many got whipsawed out the next day.

This happened because many traders didn’t understand that the Italy bond “crisis” was not real but speculation, and that this stock in particular had ample buyers waiting on the sidelines for a dip.

Trade wisely,

Martha Stokes, C.M.T.
Member of Market Technicians Association
Master Rated Technical Analyst: Decisions Unlimited, Inc.
Instructor and Developer of TechniTrader® Stock Market Courses
MetaStock Partner

©2011 Decisions Unlimited, Inc.

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