Tuesday, October 1, 2013

TechniTrader® Weekly Stock Discussion: “Platform Compressions Are Ideal Entries”

Platform compressions are ideal entries for swing and momentum traders, and identifying these compression patterns early is most important.

We are looking at SWIR today to study a relational technical analysis pattern.  This stock was under Dark Pool quiet accumulation which tends to form platforms. Dark Pools create this sideways pattern with controlled bracketed orders that buy incrementally over time.  The goal of the Dark Pools is not to disturb price. As they conclude their buying for that period, HFTs find out and can push price up with momentum as occurred in January on this chart. Prior to that move up, the candlesticks compressed. These platform compressions are ideal entries for swing and momentum traders.
A compression is a tight consolidation rather than a wider platform. It doesn’t matter where the compression forms, at the low or high of the platform range, it often precedes a decisive breakout and run or gap. Then the stock resumes its sideways pattern as Dark Pools start buying at the next level.  
Platform compressions are ideal entries that form at or near the end of the platform, and are often missed by retail traders.  
Bollinger Bands can be used to assist in the identification of the compression. These expanding and contracting bands provide excellent analysis for sideways patterns. Entries must be made prior to the breakout due to the rising energy that develops as price compresses.  
One aspect of Bollinger Bands to remember is that the center line for a strong compression will be equal distance from the outer bands.  In a strong compression, the center line on Bollinger Bands will move right through the center of the candlesticks.  If the center line is below or above, then the pattern is not as strong or indicative.
Learning to identify compressions in platforms is a Spatial Pattern Recognition Skill that helps swing and momentum traders trade platform market conditions. Sideways markets occur 50-60% of the time and these are the market conditions that tend to have retail traders whipsawed out of trades constantly.
Platform compressions are ideal entries so instead of attempting to trade the small runs in a platform, wait for the compression pattern, and enter before the stock runs or gaps with momentum.
Using different techniques and strategies during a sideways market can help swing and momentum traders find more stocks to trade with much higher point gain potential.
For information regarding trading styles sign in to access “Choosing a Trading Style” here: http://goo.gl/ki1UO4
Trade wisely,
Martha Stokes CMT
Member of Market Technicians Association
Master Rated Technical Analyst for Decisions Unlimited, Inc.
Instructor and Developer of TechniTrader® Stock Market Courses
For additional training visit http://technitrader.com
This Stock Discussion and Training Lesson is sponsored by TechniTrader.com
MetaStock® Partner

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