Identifying High Frequency Trading Firms Footprints

MetaStock SPRS Series - Week 74 - TechniTrader® Stock Discussion for MetaStock Users - Identifying High Frequency Trading Firms Footprints - June 25, 2012
By: Martha Stokes C.M.T.

High Frequency Traders HFTs are a relatively new market participant who evolved out of the professional proprietary trading floors, who broke away from their market maker employers to embark on their own business plan. HFTs are millisecond traders who use formulas and powerful high speed computers, placed near or in the proximity of the exchanges to reduce the order latency time.

An HFT can trade in and out of a stock 60,000 times a minute. Retail traders have access only to the minute trade timeframe, therefore, how these traders move price is critical to understand.

Most of the time HFT action is a huge extraordinarily long candle, with an exhaustion pattern on volume. An exhaustion volume pattern is when the untruncated volume bar hits the top of its chart. Volume may be green or red but both represent an exhaustion of the trading activity for that stock on that day. Most of the time, this signals a change of trend or a move out of a sideways pattern.

GE has an HFT volume exhaustion pattern below. Although price did not move much on this particular stock on that day, what matters for retail traders is this huge surge of HFT activity signaled that the stock was poised to move.


Chart 1

A shift of sentiment on the TechniTrader® Quiet Accumulation TTQA indicator confirms that the sell side has lost control of price, and that an upside direction is about to commence. For swing traders in particular, these footprints are valuable indicators to recognize in charts.

Below RBC shows an HFT volume exhaustion pattern as it peaks. This time, TTQA is smaller funds chasing the HFT activity. This is a very common pattern in our markets right now. HFTs instigate a one day run and then smaller funds rush in to buy speculatively only to have the stock sell down as giant funds had already started to rotate out of the stock.


Chart 2

High Frequency Trading Firms add tremendous liquidity to the markets. Their millisecond traders pump huge surges of volume and huge gains or losses for one day. BUT their trading seldom moves price in the direction they took it in a continuing trend pattern.

Understanding how each market participant affects price can help you avoid whipsaw trades, “gottcha” stock picks, and chronic losses.

Learn to identify which market participant is in control of price at that time, and then learn what their presence means for near term price action. If you do, you will be on the right side of the trade more often and make higher consistent profits.

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
http://technitrader.com
MetaStock Partner

©2012 Decisions Unlimited, Inc.

Disclaimer: All statements, whether expressed verbally or in writing are the opinions of TechniTrader, its instructors and or employees, and are not to be construed as anything more than an opinion. Student/subscribers are responsible for making their own choices and decisions regarding all purchases or sales of stocks or issues. At no time is any stock or issue on any list written or sent to a student/subscriber by TechniTrader and its employees to be construed as a recommendation to buy or sell any stock or issue. TechniTrader is not a broker or an investment advisor it is strictly an educational service.

Volume Leading Price

MetaStock SPRS Series - Week 73 - TechniTrader® Stock Discussion for MetaStock Users - Volume Leading Price - June 18, 2012
By: Martha Stokes C.M.T.

I often talk to traders who are struggling with mediocre results or chronic small losses due to whipsaws. Although it is natural to want to blame the markets, market makers, or High Frequency Trader’s HFTS for these kinds of poor results and lost profits, but the actual culprit is a lack of Spatial Pattern Recognition Skills SPRS.

Technical Analysis is your EDGE in the markets. Most traders assume that everyone in the market, large funds to small funds, HFTs, and pros are all using technical analysis. The truth is that most of the market participants are not using technical analysis. This is the advantage, that edge that retail traders have, because by looking at a chart, you can learn to read what is going on before price moves.

CTXS is an excellent example below, and is a Cloud Industry Stock. The Cloud Industry is one of the big industries that is going to reshape the world economy over the next decade.


Chart 1

CTXS was sideways for a period of time, gapped up on HFT activity, and then corrected in May. Now it is forming a consolidation after a brief run out of the bottom. What you need to learn to see is how volume is leading price.

The TechniTrader® Volume Accumulation TTVA indicator is showing the leading volume pattern over price very strongly during the consolidation. What this means is that someone is controlling price, holding it in a tight price pattern BUT the volume moving into the stock is huge. This is quiet accumulation going on in the Dark Pools.

Soon, HFTs and pros will discover this quiet accumulation and rush in to buy the stock, moving price up.

By being able to identify a consolidation pattern under quiet accumulation, you can enter the stock with confidence and ride the run upward. The key to this type of trade is to be able to see that volume leads price.

Many traders still hold fast to the old adage that price is the most important indicator. However in our modern electronic marketplace dominated by huge share lot traders and funds, volume is now the more important indicator.

Remember that there are 3 pieces of data that come from the market:

1. Price

2. Time

3. Quantity

By learning to interpret the subtle nuances of the relationship between these data streams, and what the relationships mean in terms of who is in control of price, you as a retail trader can make higher profits by avoiding weak traders and whipsaws. You will also have a much more enjoyable trading experience.

If you can learn this one SPRS of “volume leading price” then you will find that you are making consistent profits over time, with far better picks and stronger run gains.

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
http://technitrader.com
MetaStock Partner

©2012 Decisions Unlimited, Inc.

Disclaimer: All statements, whether expressed verbally or in writing are the opinions of TechniTrader, its instructors and or employees, and are not to be construed as anything more than an opinion. Student/subscribers are responsible for making their own choices and decisions regarding all purchases or sales of stocks or issues. At no time is any stock or issue on any list written or sent to a student/subscriber by TechniTrader and its employees to be construed as a recommendation to buy or sell any stock or issue. TechniTrader is not a broker or an investment advisor it is strictly an educational service.

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Wilders' RSI versus Stochastic

MetaStock SPRS Series - Week 72 - TechniTrader® Stock Discussion for MetaStock Users - Wilders' RSI versus Stochastic - June 11, 2012
By: Martha Stokes C.M.T.

Hi Everyone,

Stochastic is the most popular of all of the price oscillators available for stock chart analysis. In my last MetaStock Sponsored Webinar I talked about setting up your indicators for your own personal trading style and trading parameters. Being as specialized and proprietary as you can possibly be with your own unique set of trading indicators is a huge plus and gives you a decided edge against the pros in the market.

Using an indicator that is overly popular can be detrimental to your success as a trader. It can be hard to switch to a lesser known indicator because most traders want to be part of the crowd. But being part of the retail crowd means you are constantly at higher risk of whipsaw trades as cluster orders are constantly being tracked by the High Frequency Trading Firms.

Wilder’s RSI is not widely used these days and has the added feature of being highly adaptable and modified. Below is how I set RSI up for my TechniTrader® Students.


Chart 1

As with volume oscillators, a center line oscillation feature for RSI adds depth to the analysis. Instead of looking at merely overbought oversold patterns highs and lows, when the RSI starts to waver around its center line it exposes the bottoming pattern of this stock before it gaps up.

Stochastic as it is traditionally used strictly for overbought and oversold, is not exposing the bottoming action underway. The oscillation actually causes whipsaw risks during this bottoming phase.

Using RSI to expose the strength of the bottom via a center line that floats with price direction, tells you far more about the strength of the sideways pattern and the decided upside direction, even though price is still sideways.

In addition RSI is a very different formula compared to Stochastic. Wilder wrote it to expose whether the current price was stronger or weaker than “X period” or number of days ago. Therefore what you are looking at is a Relative Strength relationship between the current price and “x number of periods” aka days ago.

RSI therefore can and does expose strengthening price action to the upside or downside in a sideways pattern. This is a huge benefit for traders because the markets move sideways about 60% of the time.

Although Stochastic is great for exposing the overbought /oversold aspects of a sideways pattern, what is even more important is to be able to anticipate what direction the stock will move, and how fast it will move out of a sideway pattern.

RSI is superior in revealing strengthening price action, which in turn exposes momentum prior to gaps and fast runs.

Try using RSI as the market begins to bottom after this correction. It is a very underrated indicator that traders can use to see momentum building prior to huge price gains.

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
http://technitrader.com
MetaStock Partner

©2012 Decisions Unlimited, Inc.

Disclaimer: All statements, whether expressed verbally or in writing are the opinions of TechniTrader, its instructors and or employees, and are not to be construed as anything more than an opinion. Student/subscribers are responsible for making their own choices and decisions regarding all purchases or sales of stocks or issues. At no time is any stock or issue on any list written or sent to a student/subscriber by TechniTrader and its employees to be construed as a recommendation to buy or sell any stock or issue. TechniTrader is not a broker or an investment advisor it is strictly an educational service.

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How To Use A Volume Oscillator To Identify Topping Patterns

MetaStock SPRS Series - Week 71 - TechniTrader® Stock Discussion for MetaStock Users - How To Use A Volume Oscillator To Identify Topping Patterns - June 4, 2012
By: Martha Stokes C.M.T.

Topping patterns can be difficult to identify early on, before the sudden declines in price. Using a volume oscillator can help traders see the top before it actually completes.

Volume Oscillators are not as well known as price oscillators. But as the large lot market participants continue to dominate the stock market activity, price oscillators fail more and more often.

Why?

This is because often times when certain large lot market participants are selling a stock, price is holding steady in a sideways pattern, a platform, or even a consolidation. The only way to determine whether the large lots are on the buy side or sell side is through volume patterns.

Volume oscillators are ideal for sideways patterns and can expose the large lot activity within a tight sideways price action.

This allows traders to prepare for the breakout and down price action before it happens which gives traders a decided advantage in this High Frequency Trading Firm environment.

Entering before price collapses increases selling short profitability.

Volume Oscillators are usually written with a center or Zero line with parameters that range from 100 to 1000.


Chart 1

The center line volume oscillator defines the accumulation mode rising above the center line and the distribution mode with price below and or moving down from the center line.

When you first look at the chart above it is obvious it is sideways with an end of February drop that quickly recovered and another drop that has not.

By studying the patterns that formed on the TechniTrader® Volume Accumulation TTVA Indicator it is easy to see, that this stock was already at risk of a top after the steep ascent and peak of volume in early November. The following peak in early February is a lower high peak, and the March low V volume rises slightly but not above the center line of TTQA. Instead during the sideways pattern, the volume oscillator remains below the center line wavering in a downside pattern indicative of distribution before price moves down.

Learning to read volume oscillators may take some time but their ability to expose whether large lots are distributing or accumulating during choppy sideways markets is invaluable.

For most traders, knowing the direction a stock will take out of any sideways pattern is a challenge. Incorporating volume oscillators will help define distribution versus accumulation.

With over 80% of all market activity now large lot action, and since so many institutions use controlled bracketed orders that do not move price, using volume oscillators during sideways markets is critical to identifying tops earlier to prepare for downside price action and selling short.

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
http://technitrader.com
MetaStock Partner

©2012 Decisions Unlimited, Inc.

Disclaimer: All statements, whether expressed verbally or in writing are the opinions of TechniTrader, its instructors and or employees, and are not to be construed as anything more than an opinion. Student/subscribers are responsible for making their own choices and decisions regarding all purchases or sales of stocks or issues. At no time is any stock or issue on any list written or sent to a student/subscriber by TechniTrader and its employees to be construed as a recommendation to buy or sell any stock or issue. TechniTrader is not a broker or an investment advisor it is strictly an educational service.

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