Mini-Flash Crash of April 23, 2013

MetaStock SPRS Series - Week 116 - TechniTrader® Stock Discussion for MetaStock Users - Mini-Flash Crash of April 23, 2013 - April 29, 2013
By: Martha Stokes C.M.T.

The “Mini-Flash Crash” of April 23, 2013 was it real or contrived?

The retail side of the market was chattering about a "Mini-Flash Crash" that occurred because some traders saw a false report on Twitter about the White House being hit with a bomb. Nobody in the retail side apparently decided to check first before reacting to that news.

The Dow 30, SP-500 and NASDAQ composite indexes show no abnormal patterns for these indexes on daily charts, if anything they are quite normal. The upside action after component stocks dropped in the quiet accumulation and HFT buy zones was not unexpected. The sell side has been weak for the most part as this has been a retracement that rebounded off of moderate support levels built on the March platform sideways pattern.

Chart 1

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Chart 3

Also daily volumes do not confirm that High Frequency Trading action was heavy on that day. Volume for the most part is below average for these indexes. You can see on the charts the huge surge volume days when HFTs are very active.

If you study intraday charts, a down or up move of the magnitude of the one on April 23rd are fairly common either at the end of the day or within the first few minutes of the trading day. So why was this intraday action called a “mini flash crash?” What made it so special?

It didn’t alter the overall price direction for that day, the market quickly resumed its original direction. And the size or percentage of the move is not remarkable when compared to other open and close price action.

What made this a retail news hot spot was that it occurred not at the beginning of the trading day where HFTs dominate nor at the end of the trading day where Dark Pools tend to enter, but just after lunchtime.

The downside lasted 2 minutes and the upside returned stocks to their original levels in less than 3 minutes. Volumes are high but not remarkably high intraday. In fact on the daily volume, the volume shares traded is very average.

The lesson to be learned here is that often the retail news creates a big buzz and reaction by smaller lot and retail trading crowds. Volumes imply retail started the downside and large lots brought it back up.

If you were in the selling spree the risk of a loss was substantial, especially if even one HFT started triggering automated orders on the millisecond scale against you.

Most Swing and Position traders missed the whole thing as they were not hovering over their computers all day long and in the end, it didn’t affect their trades at all.

So was it a real "Mini-Flash Crash" or just an intraday burp, created by emotional retail traders?

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

©2013 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.

Hybrid Indicators

MetaStock SPRS Series - Week 115 - TechniTrader® Stock Discussion for MetaStock Users - Hybrid Indicators - April 22, 2013
By: Martha Stokes C.M.T.

I am often asked about Hybrid Indicators™ which are a new type of indicator designed for the modern automated marketplace. The modern market is vastly different than the markets of the 90’s and early years of the first decade of this century.

Major changes to the market structure, how and where the institutions transact their orders, and a more diverse Market Participant Group cycle has created a need for more sophisticated indicators for the retail trader.

If you are going to compete in this complex, dynamic, institution automated order marketplace, you need to be able to track the institutions quickly and easily.

The major shift that most retail traders are unaware of is how the Dark Pools have altered price patterns. Dark Pools are not a new transaction platform but the growth of these has accelerated, and this is causing major changes to technical patterns and candlestick patterns.

If a retail trader continues to use only what they learned in the 90’s and early 2000-2006, then they are going to be trading blindfolded and severely handicapped. Some retail traders have learned to use the new Hybrid Indicators™ that expose where the Dark Pool huge share lots are accumulating while other retail traders are still stuck using outdated, antiquated, and useless price indicators.

The huge difference that automated giant and large lot orders create for technical traders, is that these giant funds who purchase millions of shares incrementally DO NOT MOVE PRICE.

If you are using price indicators for entries and trading then you are always going to be entering late. This puts the retail trader at a huge disadvantage and causes whipsaw trades and chronic losses.

Hybrid Indicators™ such as TechniTrader® Quiet Accumulation TTQA and TechniTrader® Volume Accumulation TTVA are designed to expose where giant funds are accumulating via the Dark Pools. Using Hybrid Indicators™ their buying patterns are unmistakable and clearly defined.

The Hybrid Indicator™ uses all 3 pieces of data from the ticker tape, price, time and QUANTITY. By differentiating large lot from small lot, the footprint of the Dark Pools is revealed. Giant funds tend to buy in incrementally, over time, and they always use bracketed orders to control their price into a tight range. So if you are using price indicators, you totally miss their entries.

Most retail traders using price indicators are chasing High Frequency Traders HTFs price speculation and this causes chronic losses. HFTs trigger on the millisecond, and can be in and out of a trade 60,000 times to the retail traders 1 trade. Retail traders can only trade on the minute scale. So while your order is heading to execution in those 60 seconds, the HFTs are firing off sixty thousand orders which can and does move price hugely.

If you are struggling in these markets, the real problem is you are using outdated, antiquated technical analysis, indicators, and candlestick patterns. If you want to be consistently successful, you have got to buckle down and adapt to the market structure that exists today rather than clinging to strategies, indicators, and technical patterns that no longer work.If you are struggling in these markets, the real problem is you are using outdated, antiquated technical analysis, indicators, and candlestick patterns. If you want to be consistently successful, you have got to buckle down and adapt to the market structure that exists today rather than clinging to strategies, indicators, and technical patterns that no longer work.

The market has changed more in the past few years than it did in the prior 100 years. Think of it this way, if you were manufacturer who wanted to get your products to market and you used a horse and buggy nowadays, would you be able to compete with another manufacturer who used airplanes and trucks to deliver their products to market?

Outdated technical tools thwart retail trading success. Stop using a horse and buggy, and start using the modern technical tools for the automated marketplace.

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

©2013 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.

The Guarded Secret of the Best Traders in the World

Three Tools to Help You Recognize Tops and Bottoms Within the Trend - Part 2

Sideways Market Blues

MetaStock SPRS Series - Week 114 - TechniTrader® Stock Discussion for MetaStock Users - Sideways Market Blues - April 15, 2013
By: Martha Stokes C.M.T.

Martha Stokes, CMT is the speaker in the upcoming MetaStock Webinar "Explorations: Beyond the Basics" on April 24th at 2:30 pm PDT/ 5:30 pm EDT. Register for this live event here.

A work booklet for this Webinar is available after registration.

Right now on the institutional side of the market, things are very quiet. However in the retail trader blog rooms, forums, and in particular the day trading rooms where retail traders congregate and communicate opinions, there is nothing but frustrated comments, angry attitudes and blame.

Institutions are sitting with high profits, while retail traders are losing, losing, and losing. I call this the "Sideways Market Blues" Syndrome.

The stock market has been in a sideways pattern for a few weeks now and while the professionals step back and wait patiently much of the activity in the market is retail traders struggling to squeeze a few pennies out of a swing trade or intraday trade.

The automated market has created a whole new methodology for the professional side, and totally different approaches to trade transactions. Yet few retail traders are aware of the changes and continue to attempt to trade the markets with outdated strategies that fail dismally during sideways markets.

Meanwhile the institutions are setting trigger points, adjusting stops, and waiting. The retail side is blaming everything, anything, and getting nowhere. Stocks that look poised to move whipsaw and the retail trader gets angrier.

The Market Condition Scans for Momentum analysis have been warning for some time that there is insufficient momentum energy to create strong swing style runs both for intraday and for regular swing style trading. But retail traders are doggedly determined to force the stock market to their will, trying to find some strategy or system that will find stocks moving strongly and steadily either upward or downward that they can trade.

This is called "Traderitis" and It is a phenomenon uniquely retail. The institutions do not suffer from this malaise. With preset price zones for Dark Pools and trigger entry signals for HFTs, the automated world of the professional , which is about 70% can pause and wait, and does wait, with uncanny accuracy and remarkable uniformity.

Retail traders confuse market maker trading activity and assume they should be able to find and trade stocks every day the market is open. This creates whipsaw action during periods when the 2 largest Market Participant Groups automated orders stop triggering. The automated orders stop in harmony, but retail traders are completely unaware that there are few large lots and even less momentum energy.

Read the full report here.

Retail traders tend to use the outdated Market Breadth, Market Advance/Decline and other Market Indicators to attempt to interpret the market, but these indicators are usually only viable during extreme conditions. They are ineffectual in a Sideways Market. What is effective is an evaluation of overall numbers of stocks moving with momentum and in what direction.

If there are only 55 stocks moving with strong momentum to the upside out of the 8000+ stocks, ETFs, and ETNs on any given day, then a retail traders chance of finding the few stocks that will move strongly are heavily weighted against them.

High Frequency Trader HFT orders do not trigger heavily every day and more of their trades are pulled or canceled than ever reach the marketplace. That leaves most retail traders trading against each other during sideways consolidating markets when the Dark Pools and HFTs are not firing off orders.

Since the HFTs and Dark Pools both use automated orders, they do have a stronger tendency to work harmoniously and function as if they are aware of each other even when they are not. This is the side effect of an automated marketplace where most orders are executed by computers and not by humans.

The automated order systems actually exacerbate the stalled market, often creating insipid action that lasts far longer than it did before the markets were so dominated by automated orders.

By understanding this phenomenon, retail traders can actually improve their profitability and their trading success. If the momentum energy of the market falls below the normal range based on the "TechniTrader® Market Condition Analysis Scans," then whipsaw risk rises dramatically. Unfortunately market Indicators will not tell a trader this fact so many retail traders are trading a market void, without sufficient energy in a large enough basket of stocks to shift the odds in their favor.

Day trading and swing trading require sufficient momentum energy to be in a large group of stocks, ETFs, and ETNs so that the runs can sustain long enough for good point profits.

The reaction by many retail traders however, is not to wait but to plod along, and keep shrinking their timeframe and profit gain expectations. This only increases their risk of chronic small losses and frequent whipsaw trades.

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

©2013 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.

Three Tools to Help You Recognize Tops and Bottoms Within the Trend - Part 1

The Expanding Roles of Dark Pools

MetaStock SPRS Series - Week 113 - TechniTrader® Stock Discussion for MetaStock Users - The Expanding Roles of Dark Pools - April 8, 2013
By: Martha Stokes C.M.T.

Most retail traders are of the opinion that Dark Pools somehow harm their trading activity. This is because most retail traders do not have any working knowledge or access to reliable information regarding this off-the-exchange or Alternative Trading System, aka ATS, in the professional world. As I prepare the High Frequency Trader HTF & Dark Pools Elective Course that will debut this month at technitrader.com I am finding more inaccurate information about Dark Pools on the retail side news feeds than truly accurate data and information. This is unfortunate because unless retail traders have access to facts and correct data, they will be acting upon inaccurate data which will ultimately harm their profitability and success in the stock market.

One fact you must know is that Dark Pools are NOT going to go away. There is no way that the giant funds who control trillions if not quadrillions of dollars in the financial markets, are going to allow that to happen. But what every retail trader needs to also know is the Dark Pools are actually a huge advantage to you. Since the bulk of the mutual funds, pension funds and even sell side institutions do not use technical analysis much if at all for individual stock analysis, using technical analysis to find these institutions’ buying and selling footprints gives the retail trader a huge advantage.

Just last month, the SEC proposed the Systems Compliance and Integrity Regulation. And many retail articles wrote rejoicing phraseology about how this finally "controls Dark Pools." Actually, it safeguards Dark Pools. What the SCI does is it creates a standardization of compliance and integrity to all transactions no matter where those transactions are conducted and executed. The volumes traded in Dark Pools have risen by 50%. It is NOT that Dark Pools account for 50% of all transactions in the markets, it is that they have INCREASED by 50%. This is a confusing detail for many retail articles. Dark Pools do not represent 50% of the total volume of the markets, far from it. But they are a huge force to be reckoned with as they move so much money, and control far more than half of all the outstanding shares of stock in the US financial markets.

The SCI requires that exchanges, ATS, all clearing houses and order completion, as well as transfer venues for market data to have hardware and software technology that meets certain SEC standards. In addition all of these various market venues must conduct "business-continuity" testing, and are required to notify the SEC regarding disruptions and technology problems or issues. Technologies must provide robust processes that can withstand the pressures of a highly stressed financial market that is moving at the speed of light. Correlation across all financial markets is a requirement and insures stability of the financial industry. The US is still the largest financial market in the world and that will not change any time soon. The US has the largest corporations in the world and has the largest investor base in the world.

The SEC is determined to protect that status, and this is the essence of Dark Pool regulation. It brings the standards of the Exchanges to the ATS and other Dark Pool Venues. It establishes a foundation for consistency and a backup fail-safe system, to ensure the overall strength and integrity of the financial markets. So no, the Dark Pools are not going to be forced to trade against the High Frequency Traders on the exchanges. No, they are not going to be forced to expose their proprietary intellectual property Algorithms or Quant-based formulations, or their investing strategies. Those corporate secrets are as protected as any corporations would be under the laws of the US. Most retail traders are still using utterly outdated "trading systems" that employ indicators as signals or worse the red/green arrow signal systems. By incorporating indicators like TTQA TechniTrader® Quiet Accumulation that expose Dark Pools, they are easily recognized if you understand how, why, when, and where they buy and sell.

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
©2013 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.

The Changing Landscape of Technical Analysis

MetaStock SPRS Series - Week 112 - TechniTrader® Stock Discussion for MetaStock Users - The Changing Landscape of Technical Analysis - April 1, 2013
By: Martha Stokes C.M.T.

The Financial Markets are undergoing massive internal structural changes that are impacting price and volume action, that retail traders depend upon due to their use of charts and technical indicators for stock pick selection and trading.

As the Financial Markets evolve so too are the price patterns that form on charts. This requires that retail traders first be aware of these new technical patterns, and secondly understand what those patterns mean for short term trading styles.

Candlesticks have become the standard for most retail traders and there are numerous brand new formations. When candlesticks were introduced to the western markets in the early 1990’s by Steve Nisson, the translation from Japanese commodities markets trading was exact and precise including the unique and artistic visual names assigned by the Japanese to different formations.

What western retail traders now must learn are the new patterns developing due to several factors:

1. The increased use of High Frequency Trading venues on exchanges. These affect intraday and day traders mostly as HFT action on the millisecond causes more gaps and sudden price reversals and whipsaws now than were present a few years ago.
2. Dark Pools are off the exchange aka over-the-counter transactions, that are delayed orders not displayed on the exchange platforms.
3. If Dark Pools liquidity is insufficient to fill their orders, then their activity can suddenly alter the exchange transactions when their orders move to the exchanges for liquidity. This can cause a ripple effect in price action most retailers do not anticipate, which can cause whipsaw activity due to HFTs triggering as a DP is identified by the computer generating HFT order flow.
4. Smaller Funds buying creates speculative runs similar to retail traders system buying order flow. This creates cluster orders that the HFT computers identify as large lots activity which can cause sudden shifts of sentiment patterns on TechniTrader® Quiet Accumulation TTQA and other large lot indicators.
5. Since HFT orders are traded on the millisecond which means 1000 trades per second, with some HFTs now firing off 3000 per second and these orders which can be small lot per order, actually become large lot patterns for retail charting software which is based on the minute scale or even one second scale tick. Most retail charting software is not designed to track true tick by tick transactions but bases tick by tick on a second by second timeframe. So these lots combined are huge lot orders and do affect indicator patterns that use tick by tick formulations.

TTQA is a large lot tracking indicator written by TechniTrader® specifically for MetaStock Charting Software. What it is showing on the Dow in 2013 is a high level of small fund activity buying Dow component stocks. Dark Pool activity has shorter bars and shifts green to gray during quiet accumulation phases, as the giant funds buy incrementally over several weeks huge volumes of shares are spread out and then do not impact price or volume. Volume spikes are always HFT activity.

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
©2013 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.