The Breakaway Gap

MetaStock SPRS Series - Week 83 - TechniTrader® Stock Discussion for MetaStock Users - The Breakaway Gap - August 27, 2012
By: Martha Stokes C.M.T.

Gaps are commonplace in the modern formula automated order processing stock market. With so many market participants using orders triggered by formulas and Quantitative Analysis strategies, gaps have become more of the norm rather than the exception.

For many short term retail traders, seeing a stock gap can be a frustrating experience. You want to capture those quick points as profit, but how can you if you don’t know when or if a stock is going to gap.

Over the next few weeks we are going to discuss each type of gap and why they form, where they form, how they form, and how you can get into the stock before the gaps.

Gaps form because of overnight order flow and premarket order flow. So all gaps on the daily charts form because of what is going to happen the minute the stock market opens.

Gaps occur due to other exchanges around the world opening before the US market and trading the stock at a higher price or a lower price, than what it closed at on the US market the day before.

Gaps also form due to heavy overnight order flow where many orders come through, so the market markets legally raise the price of the stock before the stock market opens, in relation to the supply and demand ratio for that stock.

Many gaps are caused by High Frequency Trading Firms that sniff out retail news, and other events that retail traders trade on or that smaller funds trade on. The HFT trigger order reacts to the news, positive or negatively, and this starts a chain reaction of thousands of trades firing off early even before the markets open. With the HFTs buying on news or selling on news in anticipation of a smaller fund or retail market participant reaction, stocks can gap hugely at open as the supply and demand side of the market creates a heavy trading pattern.

The first step is to identify which type of gap has formed.

1. Common Gap
2. Breakaway Gap
3. Running aka Measuring Gap
4. Exhaustion Gap
5. Island Continuation Gap
6. Island Reversal Gap

Do you know which of the gaps listed about formed on the chart below? It is crucial to your success that you can immediately identify what gap has formed, because the type of gap tells you a great deal about what price will do next.


Chart 1

Once you can identify what type of gap formed, then you will be able to determine what price will do next.

KORS is a young IPO stock, it has only been a listed stock since December of 2011. The recent gap is significant. Do you know what this most recent gap is from the list above?

Please study this stock and all the gaps on its chart. Next week we will discuss this type of gap, why it gapped, and how you could have anticipated this gap, getting in early before the stock moves several points. Also we will discuss whether this gap will “fill” or whether it will continue upward.

Hint: this one is the type of gap that seldom fills and tends to move upward.

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.

How ETF's Can Elevate Your Trading -- Brad Powell

Position Trading

MetaStock SPRS Series - Week 82 - TechniTrader® Stock Discussion for MetaStock Users - Position Trading - August 20, 2012
By: Martha Stokes C.M.T.

Position trading is an easy to learn short term trading style that can provide extra monthly income for part time traders. One of the huge advantages of this type of trading is how little time it takes and the low risk of the trade.

The first step for most position trading is to find stocks that are bottoming. An ideal pattern is when the TechniTrader® Quiet Accumulation TTQA shows a shift of sentiment. TTQA shift of sentiment occurs when High Frequency Traders HFT automated orders, trigger panic among smaller funds who then sell heavily just as a stock is commencing a bottom. You can see this pattern clearly in the chart below. HFT red volume and red TTQA is followed by smaller funds selling as the stock bottoms. Then the shift of sentiment occurs with TTQA turning gray and then green, with average volume green bars exposing Quiet Accumulation from Dark Pool activity of the giant and large funds.

Chart 1

Further confirmation is seen with TechniTrader® Volume Accumulation TTVA, the volume oscillator provided by TechniTrader® that exposes consistency in volume patterns over time. As this volume oscillator moves above its center line and the ROC crosses below, the Dark Pool quiet accumulation activity is easy to see. TechniTrader® Flow of Funds TTFF the flow of funds indicator, also confirms steady inflows of buying by the institutions from Dark Pools.


Chart 2

Once the bottom is confirmed use a weekly chart to determine where resistance will stall price, and also to identify when the bottoming formation will be complete. The first level of resistance is the completion level for a bottom.


Chart 3

Position traders need to start watching stocks at the first indications of Dark Pool activity. Dark Pools are huge share lots often buying millions of shares of a company over several weeks to several months. When High Frequency Traders learn of the Dark Pool accumulation, they rush in and drive price up speculatively. This is why so many bottoms have strong velocity moves prior to the first level of resistance.

Position trading can be a highly lucrative trading style that doesn’t require the heavy commitment of time and resources that swing and day trading require. You can start with a much smaller capital base and you can study charts once a week, on a weekend, or in an evening rather than the daily studies required by swing and day trading.

Position trading is also far less risk as you are buying a stock that has completed a bottom and is poised for solid upside gains over several weeks to months.

This is a much slower paced, less frenetic style of trading that many busy people who simply do not have the time to trade every day can use for extra monthly income. Position trading is fun and rewarding.

If you are trading part-time consider position trading as an alternative to the more demanding swing and day trading styles.

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.

Candlesticks

MetaStock SPRS Series - Week 81 - TechniTrader® Stock Discussion for MetaStock Users - Candlesticks - August 13, 2012
By: Martha Stokes C.M.T.

Candlesticks have become very popular since they were introduced to western technical analysts back in the mid-1990’s. The first use of candlesticks in trading were not buy entry signals, but to identify reversals and continuation candle patterns.

As the electronic market place has changed the market structure, the number of market participant groups, how stocks are bought and sold, on exchanges, Dark Pools, and over the counter, this has altered what price does on a stock chart. What is occuring is an evolution of the candlestick patterns altering the original concepts and providing for candlesticks as an entry tool rather than an indicator.

Below is one of the newer candle buy signals called a sandwich which is a squeeze of the opposing side of the trade.

This confirms that buyers are totally in control of price even though profit taking commenced for one day. It eliminates the normal retracement that would occur.

Chart 1

So what happened on those 3 days?

First High Frequency Trading Firms moved in on news, pushing price up before the stock market opened. This has been their strategy for many months now. They snatch news feeds before they reach retail traders news websites and the news triggers pre-market HFT orders on the millisecond scale. By the time retail traders get the news and start trading, price has already gapped.

The HFTS using this strategy are only trading the stock for one day. As they stop trading the stock, price falls creating the long wick due to a sudden void of millisecond trading. The next day traders sell the stock some at a loss because the wick ate most of their profits.

Then the next day the stock resumes a buying pattern because another market participant groups orders triggered as the stock fell back into their buying price zone.

This is what creates the sandwich pattern seen frequently during volatile market conditions.

Learn to read the new patterns that are forming in our markets due to the 9 different market participant groups. When you can identify who is controlling price, you will be able to anticipate the price action and direction, especially in sideways markets.

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.

Reading Charts

MetaStock SPRS Series - Week 80 - TechniTrader® Stock Discussion for MetaStock Users - Reading Charts - August 6, 2012
By: Martha Stokes C.M.T.

Reading Charts is a skill that all traders need to hone and strive to improve constantly. Price patterns matter. What price is doing tells you a great deal about what market participants are controlling price. Who is in control of price tells you:

1. How price will behave
2. How price will react to support and resistance
3. How long price will move in that pattern
4. What to look for ahead of sudden price moves
5. When a bottom or top is underway

The chart of MRK shows an extreme angle of descent into the lowest low before a bottom commences. Even as this final sell down occurs, it is obvious that the steepness of the angle of descent is unsustainable. Plus you have TechniTrader® Quiet Accumulation TTQA exposing smaller fund capitulation as the stock tumbles.

The sideways pattern after the low is indicative of the giant funds buying in incrementally with controlled bracketed orders over time. Since some retail traders and High Frequency Traders HFTs are still trying to sell short against the strength of the giant funds buying, the up and down day to day price pattern forms. Then as the stock moves up to the first tier of resistance around 35-37, the HFTs realize that dark pool buying by the giant funds is been going on, so they rush to buy in quickly creating a buzz in the retail traders world, and short term swing style trading occurs. At this time the giant funds have accumulated what they wanted, and so the news spreads of their buying.

This creates speculative runs due to emotional at market buying by smaller funds. The stock runs up and then hits stronger resistance where it stalls. Momentum evaporates and the stock moves sideways in a platform.

It could have just as easily started to move down in a correction. But it didn’t because as profit taking began by the HFTs and other pros short term swing trades, the giant funds buying in dark pools entered again, controlling price tightly with their orders off the exchanges.

Platforms are a “value oriented” market condition where the dominant buyers are large lots buying in incrementally over time. This is usually based on earnings reports.

The stock slides downward during the latter part of the sideways action.

This is a “gottcha” pattern. The giant funds are not selling, but rather they have stopped their accumulation, and a void of buying by these huge lot purchasers causes a slip-slide action.

But if you study the slip down action closely, you will see that the stock stops just at the lowest low of the platform, see the first red arrow as the lowest low. This indicates that the giant funds stopped buying, then as the stock slipped to the low range buying started again briefly.

HFTs and pros traders started buying the stock creating another speculative run, which now has shifted to a peaks and valleys trendline pattern.

The shift of trendline patterns throughout this chart show you where one market participant group started and stopped buying the stock, and different market participant group took control of price.

By understanding that the upward trend cycle has many different tiers and layers of a variety of market participant groups, you can quickly identify which market participant group or groups control price at what time.

By knowing who controls price, you will learn how price will behave and that tells you what to expect next.

Chart 1

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.