Tuesday, April 3, 2012

Anticipating Price Action

MetaStock SPRS Series - Week 62 - TechniTrader® Stock Discussion for MetaStock Users - Anticipating Price Action - April 2, 2012
By: Martha Stokes C.M.T.

When a stock is running in a moderately trending mode, it is critically important to make sure your indicators are predominantly volume and quantity oriented rather than price oriented. Traders tend to use too many price and time indicators and not enough volume and time, or even better, volume, time, AND price indicators.

As an example: YUM.

Chart 1

Stochastic, the most popular of the PRICE and TIME oscillators, fails during a moderately trending pattern. Stochastic has trough failure patterns where the cyclical pattern fails to cycle down to the oversold line. This is due to the lack of sideways action in the moderately trending stock. With failure trough patterns, false exit signals are given which cause traders to exit prior to the runs upward on a moderately trending stock.

YUM has not gone speculative nor is the angle of ascent too steep to sustain for now. At some point, the angle of ascent will move too vertically for the stock to sustain and profit-taking will commence. For now, the intermittent profit-taking by HFTs, pro traders, and institutional traders has not impeded the run upward.

Quantity indicators provide far more valuable information than price and time indicators on a stock that is trending moderately.

Flow of funds shows a tapering off of money flowing into the stock. TTVA shows that the volume is becoming less consistent and more volatile as price continues upward, the earliest signal to watch for.

Chart 2

TTQA shows HFTs, Pros, and Institutional trading activity instead of quiet accumulation by the large institutional investors. These short term traders tend to move price rapidly, pushing price upward as smaller lots jump in excitedly. The volume indicator and TTQA expose the footprints of the short term pros of the market.

Chart 3

Already there is a divergence forming between candlestick prices and the quantity indicators which warns early that keeping tighter stops is wise.

Learning to use Leading Indicators and Hybrid Indicators instead of merely price and time indicators will improve your ability to detect subtle shifts of power and sentiment before price is impacted. The earlier you can see the shift, the more time you have to make decisions, and the more information you have for better decisions.

Your goal should be to always be able to anticipate price action well ahead of price. To do so, you must employ quantity indicators that lead price.

Why do quantity indicators lead price? Because the institutions dominate the trading activity on a short term and long term basis. They control over 80% of the trades these days. Price doesn’t necessarily move due to the institutional activity.

The only way to truly detect what they are doing is to use more quantity indicators.

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

©2012 Decisions Unlimited, Inc.

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