Monday, May 13, 2013

Dark Pools

MetaStock SPRS Series - Week 118 - TechniTrader® Stock Discussion for MetaStock Users - Dark Pools - May 13, 2013
By: Martha Stokes C.M.T.

I recently held a webinar for MetaStock® users and encourage them to write in requesting topics for this forum. I am happy to write about specific topics of interest to you, just email with your request and I will put it in my queue.

This request was regarding Dark Pools.

Dark Pools are a relatively new term for a commonly used practice of several decades. The reason it is now more in the news than ever before is the fact that more and more giant funds-hedge, funds, mutual funds like Vanguard, market makers like Goldman Sachs, and Sell side like State Street are using the Dark Pools.

The IOSCO recently reported the total shares of stock traded on Dark Pools accounted for 12% of the total volume on all platforms. This included exchanges, ETNs, ATS and other professional platforms. That is up from about 2% before 2000.

Contrary to popular myth, neither Dark Pools nor High Frequency Traders HFTs account for 70% of all trades on the stock market platforms.

That figure was inaccurately and misleadingly used to incite retail side trader's emotions.

At this time 70% is the total number of automated orders coming from all venues and all sources. That includes many retail side trading systems, and retail brokers who sell to you out of their inventory rather than placing your order into the exchanges.

Dark Pools are here to stay and they do affect intraday trading greatly as their orders are delayed report orders. This means that pre-trades do not reflect Dark Pool activity.

Dark Pool activity is reported to the National Clearing House. All are documented, recorded, with transfer of title and issuance as required by law. All that data is fed into the Data Feed Providers for both the professional side and the retail side such as Reuters, and ends up at the end of the day in your charts.

So learn to identify volume, accumulation or distribution large lot indicators, and price action that exposes where the Dark Pools are buying or selling. Then you can enter when they are accumulating, which is long before the HFTs discover that accumulation and ride the runs up.

Here is a chart example of these patterns in SAIA:

Chart 1

The trick is that Dark Pool transactions are intended NOT to disturb price, no matter how large the lots are over time.

So price is NOT the most important indicator. Large lot indicators versus small lot indicators are most important, IF you want to find the Dark Pool 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
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.

No comments: