Official MetaStock Blog: June 2013

Friday, June 28, 2013

Downtrending Index Action Analysis

MetaStock SPRS Series - Week 125 - TechniTrader® Stock Discussion for MetaStock Users - Downtrending Index Action Analysis - June 28, 2013
By: Martha Stokes C.M.T.

During a short term correction certain indicators will expose bounce risk and short term directional shifts, which can help short term traders avoid whipsaws and other profit limiting price action.

Using the Hybrid Indicator™ TechniTrader® Volume Accumulation TTVA which is a Center Line Volume Oscillator CVO with Rate of Change ROC, the Swing and Day trader can identify important divergence and convergence patterns prior to tops and bottoms.

In the chart above for NASDAQ the runaway trendline pattern is weakening, with TTVA turning down diverging from price prior to the top formation. The convergence of TTVA and ROC reveals that shift for downside sentiment prior to the stock moving out of its consolidation. The pattern widens with ROC rising faster than TTVA which indicates bounce risk prior to the bounce occurring.

Price Rate of Change PRC and Rate of Change ROC in the bottom chart window shows that price is choppy, while TTVA leads running down faster than PRC during the sideways pattern before the gap down. When TTVA leads PRC it indicates more downside volume energy than candlesticks show by themselves.

There is much to observe with these indicators. Peaks and Trough patterns, Divergences, Angles of Ascent, and Angles of Descent all tell the technical trader information about what price will do next. Relational patterns between line price indicators and line volume indicators make it easier to see the relationship between price patterns and volume patterns.

Other indicators that expose Dark Pools and smaller funds activity as well as High Frequency Traders HFTs, are Volume which is not truncated and colored for easier analysis, and TechniTrader® Quiet Accumulation TTQA.

HFT volume patterns stand out and are easily identified. HFT volume patterns are contrarian or confirming depending on where in the trend they form and the length of the volume in relation to prior volume. Contrarian patterns such as the last HFT volume warn of bounces and whipsaws before they occur.

TTQA reflects extreme small funds buying speculatively prior to the top. The weakening TTQA is evidence and confirmation that the sideways pattern was a top.

Position Traders watching for the beginning of a bottom formation, should use longer period settings because they work best.

In the chart above we can easily see that TTVA is near the bottom of its chart, and is extreme so an attempt at a bottom is likely to start soon to test these recent lows. TechniTrader® Flow of Funds TTFF shows that the overall institutional holdings and flow of funds has not been a huge dump, but a moderate rotation out of some of the COMPQX components. Both indicators have Angles of Descent that are too steep to sustain so upside action is needed to pattern this out.

We will be studying indicators in a TechniTrader® and MetaStock Partner Webinar in July. For more information go to http://technitrader.com/get-connected/

Trade wisely,

Martha Stokes, C.M.T.

For more information email: info@technitrader.com
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.

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Friday, June 21, 2013

The Anatomy of a Bottom

MetaStock SPRS Series - Week 124 - TechniTrader® Stock Discussion for MetaStock Users - The Anatomy of a Bottom - June 21, 2013
By: Martha Stokes C.M.T.

Short term bottoms are often times a sideways pattern that slowly rises out of the low. Often times it is hard to see this is a bottom developing because the price is moving in such a choppy up to down pattern each day, that it is hard to determine a bottom is underway. One great way to decide whether a bottom is underway or not, is to use TechniTrader® Quiet Accumulation TTQA to see if quiet accumulation by the Dark Pools is underway.

The chart above shows that a bottom is clearly underway when you study the TTQA in relation to volume bars. The top is defined by the High Frequency Traders HFTs trigger order followed by many smaller funds rushing to buy. The green volume spike to the top of the chart and the heavy green TTQA is the footprint of these market participants. These small lots and smaller funds create the top as professionals start taking profits. As the stock falls into a correction, the red TTQA forms exposing selling short and some fund rotation. Then the stock starts what looks like another leg down, however TTQA turns gray and green which is the footprint of the giant funds that use Dark Pools.

As the green TTQA forms, the stock makes a higher low and begins the process of building its bottom. This is an up and down action within a range of price. As long as it stays within that range, TTQA remains green and accumulation continues.

The accumulation continues for many days and the stock slowly moves up. TTQA turns green as the price moves slightly out of the quiet accumulation zone.

This pattern is one of the most reliable patterns for determining when a stock has reached its bottom low and is likely to start forming a true bottom.

Price will continue to move up and down during accumulation because the institutions who are buying are quietly accumulating over time and use a price range to do so.

Learning to identify bottoms early helps avoid whipsaw losses when selling short. It also helps you prepare to buy into the stock as it completes the bottom, and begins to accelerate with momentum energy.

Trade wisely,

Martha Stokes, C.M.T.

Monday, June 17, 2013

MetaStock Acquired By Innovative Market Analysis

Salt Lake City, UT. – June 17, 2013 — Utah-based Innovative Market Analysis acquired the award-winning MetaStock technical analysis software line from Thomson Reuters effective June 17, 2013.

Innovative Market Analysis was created by current MetaStock President Scott Brown.

“We are very excited Thomson Reuters allowed us the opportunity to purchase MetaStock,” said Mr. Brown, owner and CEO of Innovative Market Analysis. “MetaStock has been helping traders incorporate technical analysis into their trading decisions, allowing them to make logical, well thought out trading decisions for over 30 years. This combined with the fact that MetaStock has won numerous awards over the past three decades within the technical analysis software industry has made this acquisition an easy decision.”

Innovative Market Analysis will continue selling the award-winning MetaStock and MetaStock Pro charting software packages to self-directed traders worldwide. Day-to-day business and services Innovative Marketing Analysis offers its clients will remain the same including support, programming, and developing the software as well as management of customer accounts.

“The biggest winners in Innovative Market Analysis’ acquisition of MetaStock are our customers,” said Scott Brown. “We have more programmers focused on improving the MetaStock product and capabilities of MetaStock now, than ever before. In addition, our staff remains very much the same. The average employee has been with the company for at least ten years. We are very excited to capitalize on the opportunities available to us.”

Innovative Market Analysis and Thomson Reuters will continue to work together and the DataLink and XENITH data feeds will continue to power MetaStock and MetaStock Pro. On the institutional side, Thomson Reuters clients will still use MetaStock Pro functionality in its flagship desktop Thomson Reuters Eikon.

Innovative Market Analysis is based in Salt Lake City, Utah. For more information on Innovative Market Analysis, please contact Alex Henricks at 801.883.8500 ext. 3161 or via email: alex.henricks@metastock.com.

About Innovative Market Analysis

Innovative Market Analysis develops, markets, and supports the award-winning MetaStock software line. Created by Steve Achelis in 1982, MetaStock is the premier charting and technical analysis software solution for the self-directed trader. MetaStock provides both end-of-day and real-time data for most markets throughout the world. MetaStock also has an institutional version, used by professional traders in some of the world’s largest financial institutions.

Contacts

Alex Henricks – Marketing Coordinator – 801.883.8500 ext. 3161

Using HFT Volume Patterns as a Contrarian Exit

MetaStock SPRS Series - Week 123 - TechniTrader® Stock Discussion for MetaStock Users - Using HFT Volume Patterns as a Contrarian Exit - June 17, 2013
By: Martha Stokes C.M.T.

High Frequency Traders create huge volume spikes on charts that are the most easily identified volume pattern in today’s automated market. These massive surges in volume create a distinct pattern that can be recognized instantly for quick stock pick selection.

The professional trick is that certain HFTs volumes indicate continuation patterns while other HFT volumes indicate a reversal is imminent. Determining which has occurred tells you how to trade the stock at that time.

One of the most common patterns that forms in an uptrend is the double HFT volume spike. Often times the price doesn’t move hugely as it would out of a bottom or during a momentum gap, but remains almost flat. This is a signal that the stock is under heavy large lot selling or distribution patterns as price moves up. When HFT volumes are unable to move price this is usually a warning that the stock will not sustain upside action but will shift either into a sideways pattern, or start to form a top. This stock moved sideways after the double HFT volume spikes, unable to gain ground as more and more giant funds quietly moved out of the stock while smaller funds were buying after the HFTs.

A key element of understanding HFT volume spikes, is knowing who trades with HFTs and who trades after HFTs.

This technique works for Swing, Position, and other short term trading styles.

You can see that volume has dropped off significantly after the HFT double volume spike than prior to that spike. This means that quiet accumulation was going on prior to HFT orders triggering. Once the HFTs discovered the quiet accumulation the HFT automated orders triggered two days in a row creating huge volume but now appreciable price variance, gain or loss. The volumes drop way below as smaller funds with smaller sized lots rush in.

What we have is the battle between the Dark Pools and HFTs. Dark Pools are able to hide their pre-trade order interest in a stock, thereby hiding from the HFT as they accumulate. However, when HFTs discover the accumulation later on, their orders trigger. Smaller funds trade similarly to retail traders and follow HFT action, because they are not as informed about the relationships between Dark Pools, HFTs, smaller funds, retail traders, and price and volume patterns.

Using HFT volume spikes, especially the double volume spikes as contrarian or exit patterns allows you to plan your trading well in advance of price reversals on uptrends, and bounces on downtrends. It also helps you avoid buying into a stock that is shifting sideways, creating the risk of small losses for Swing and

Momentum traders.

Trade wisely,

Martha Stokes, C.M.T.

Monday, June 10, 2013

Topping Patterns "Why Technical Tops Are Changing"

MetaStock SPRS Series - Week 122 - TechniTrader® Stock Discussion for MetaStock Users - Topping Patterns "Why Technical Tops Are Changing" - June 10, 2013
By: Martha Stokes C.M.T.

Topping Patterns have been changing shape, dimension, and magnitude for several years. Why Technical Tops are no longer easy to recognize is the fact that most Technical Analysis books were written 30-50 years ago, for a completely different market structure.

Sure there are still some recognizable tops but often times, the top has already moved down and is near support before it is visible on your charts. Why have technical patterns changed so much in the past few years?

Massive internal structural changes to the financial markets have created shifts in buying and selling strategies, patterns, orders, etc. by the largest and most influential market participant groups. While the retail side of the market continues to buy and sell stocks as they have for many decades the professional side has evolved, altered their methodologies, and are using brand new approaches to how and when they trade.

Because these market participant groups dominate the market controlling over 80% of all the market orders, lit, dark, and semi-lit venues from Exchanges to Dark Pools to ATS, their buying and selling patterns are now reflected in the candle price patterns on your chart.

AMAG had been moving up with momentum out of a bottom low. It ran up quickly to resistance and corrected on the short term trend, backed off of the resistance level and then shifted into a consolidation pattern. The next run up topped with a collapsing price in a few days. But there is no evidence that this run up which moved past the resistance level was any different than the prior run. Or was there?

The top is not at a resistance level, nor is it a text book pattern. It is not a V top or an M top and it is definitely not a Head and Shoulders top.

So what is it? It is a High Frequency Trading topping action. HFTs were the controllers of price during the run out of the bottom and the move up in April and in May. In both cases HFTs dominated and controlled price on critical upside days.

But in the new market structure, HFTs patterns like this one, are not continuation patterns BUT are warnings of imminent reversals. By understanding that HFTs buying patterns precede reversals rather than creating continuation patterns, the topping identification comes when HFTs activity increases at or just above resistance. Often HFTs will drive price above a resistance level and then quickly reverse to selling short.

These new topping patterns form because different market participants are using unique and new strategies and algorithms.

Trade wisely,

Martha Stokes, C.M.T.

Friday, June 7, 2013

Using the OWL and PTF Indicators with MetaStock

Tuesday, June 4, 2013

How to Use Relational Analysis - Part 2

MetaStock SPRS Series - Week 121 - TechniTrader® Stock Discussion for MetaStock Users - How to Use Relational Analysis - Part 2 - June 4, 2013
By: Martha Stokes C.M.T.

Relational Analysis™ takes your basic technical skills to a professional level. The pros analyze more than just a stock chart. That is only the beginning for a trader working independently or for a Sell Side or Buy Side institution. There are other factors that determine whether the stock is the ideal candidate for trading or not.

Risk Analysis is a big part of Relational Analysis™ because risk is always at the forefront of pro trading and helps to quickly eliminate stocks. Rather than taking the approach that most retail traders take, which is trying to FIND a stock to trade using, news, recommendations, or other commonly overused strategies, pros keep a watchlist of stocks and then study the risk factors.

Studying the risk versus the potential realistic gains using Run Gain Point Potential and/or Target Gain Potential eliminates the emotions or personal bias in selecting stocks to trade. 3/1 to 5/1 potential points gained to points at risk is a solid risk ratio. Most retail traders use 2/1 or 1/1 or even ½ to 1 which automatically increases their chances of a losing trade.

Here is a chart example:

Relational Analysis™ that includes Risk factors would quickly assess these aspects of the chart:

Are the runs lengthening or shortening in terms of number of days and points gained?
Are the candles shrinking in size or lengthening?
What is the total run gain average per run?
What is the potential run gain for this next run and how many days?
What resistance will halt the run and at what price?

With these risk factors quickly determined, a potential gain is estimated and the risk based on technical support can be used to calculate your risk ratio.

It is not about what candlestick pattern, what indicator crossover you find, it is about using professional level skills and tools to quickly eliminate those stocks that do not have sufficient risk to profit potential for consistent profitable trading.

Trade wisely,

Martha Stokes, C.M.T.