Monday, January 14, 2013

Reading Charts

MetaStock SPRS Series - Week 101 - TechniTrader® Stock Discussion for MetaStock Users - Reading Charts - January 14, 2013
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.

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

©2013 Decisions Unlimited, Inc.

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