Accumulation/ Distribution Indicators for Tracking Dark Pool Activity

The quest to find where the largest institutional investors are investing vast sums of mutual fund and pension fund money leads many traders to search for accumulation/ distribution indicators.  

When choosing an accumulation/ distribution indicator it is important to determine what data is used in the formula.  Fortunately, this is relatively easy to do in your MetaStock charting program, which provides the formulas for many indicators. The problem with most of the accumulation/ distribution indicators, often called A/D indicators, not be confused with Advance/Decline indicators, is that the market structure has changed dramatically in just the past few years.  Before 2005, no retail side trader had ever heard of High Frequency Trading, aka HFT, or Dark Pools. These massive market structure changes are evolving rapidly and so too must the indicators you use.

The Williams Accumulation/Distribution indicator is an example of one of the indicators that traditionally fall under the Accumulation/ Distribution category. However, this indicator uses only price and time in its formula. It was written on the premise that price action revealed where large lots and giant lots were buying or selling. And in the 1990s that was the case.

But in today’s market, tracking price surges only reveals HFT action and does not reveal Dark Pools, which are significantly more important Market Participants with massive capital resources.  Chasing HFTs is never going to make you a happy prosperous trader.  Getting in with the Dark Pools will help you succeed.  Williams’ Accumulation/ Distribution indicator does not use the data needed to track the Dark Pools because they buy and sell without moving price. So this indicator alone will not give you the information you seek in terms of true accumulation/ distribution signals.

Tracking Dark Pool activity is where you must focus your attention, regardless of your trading style.  Knowing where the largest funds are buying or selling gives you ample time to enter and prepare for huge HFT moves later on.  Unfortunately, there are extremely few true accumulation/ distribution indicators, which must include volume in the formula to be a true accumulation/ distribution indicator in today’s market structure.

One true accumulation/ distribution indicator is the one we have created for the MetaStock Charting Program: TechniTrader Quiet Accumulation, aka TTQA.

With its ability to detect large-lot activity even when a stock’s price is not moving up or down, it is ideal for applying a Relational Analysis™, which reveals the active Market Participant groups in a stock through the patterns created due to how and when they buy or sell. The TechniTrader Quiet Accumulation indicator is one of the most powerful you can learn to use for identifying Dark Pool activity.

Relational Analysis using TTQA can expose contrarian patterns, Shift of Sentiment, Divergence or Convergence Patterns, just a few that help guide traders to when Dark Pools are moving in or out.  It is useful for all trading styles and provides information that is not available to retail traders otherwise.

Institutions that use Dark Pools do not move price, so using Accumulation/ Distribution indicators that do not include volume are of no true value for this type of study. With the market structure changes and so much of the giant lots using off-the-exchange transactions during the day, TTQA and Relational Analysis are now more important than ever to learn.

Check out TechniTrader Quiet Accumulation in this video.

Trade Wisely,

Martha Stokes CMT

www.TechniTrader.com

www.MarthaStokes.com

Chartered Market Technician

Master Rated Technical Analyst: Decisions Unlimited, Inc.

Instructor & Developer of TechniTrader® Stock Market Courses

MetaStock® Partner

© 2014 Decisions Unlimited, Inc. DBA TechniTrader®. All rights reserved.

Disclaimer: All statements are the opinions of TechniTrader, its instructors and/or employees, and are not to be construed as anything more than an opinion. TechniTrader is not a broker or an investment advisor; it is strictly an educational service. There is risk in trading financial assets and derivatives. Due diligence is required for any investment. It should not be assumed that the methods or techniques presented cannot result in losses. Examples presented are for educational purposes only.

Employee Spotlight: Jeffrey G

This month's employee spotlight is on Jeff Gibby, the Manager of Business Development.
Time with Company:  17 Years

Area of company works in: Business Development

Do you trade in your spare time: Yes

Favorite part of your job: Doing webinars and developing strong profitable relationships.  

Favorite Quote: "Success is the ability to go from one failure to another with no loss of enthusiasm."  Winston Churchill

STOPS and their impact on your bottom line.

In one of my regular webinars we discuss how to determine a strategy for trading.

In the webinars we discuss how to find a strategy that works well considering the variables that will be at play for them.  Different traders have different risk tolerances, differing abilities to sustain open position draw downs, and differing amount of time available to trades.  MetaStock has one of the best collections of available systems for customers looking to find a strategy that works for you.

What a lot of new customers do not realize is that it is very easy to customize the built in Systems to test different stop strategies.  What's more important is to be able to quantify the effect using stops.

To illustrate this, lets take a look at the Pattern Trading System in MetaStock.  Performing a system test in MetaStock over the last year of trading on this system would yield the following equity curve.

This is a pretty good equity curve.

So it is definitely a system I would consider trading.

Looking at the chart and commentary in the software, it specifically states

"While [This System] can be very good at capturing profits on a large number of trades, no real protection mechanism has been put into place if the trade immediately moves against you. Stop-loss orders should be used to prevent the few failing trades from removing all acquired profits."

So, it might be a good assumption to take Apple and take the next available signal on the stock.  How do we decide on what stop is going to work for us.  If we place our stops too close to the current price, we get whip sawed out of the market during normal market maneuvers.   If we place our stocks to far from price activity, then we are taking more of a loss than we need to.  As a trader, I want to know what impact adding a stock is going to have to my overall performance on that security.

Luckily, with MetaStock its very easy to add a Stop to any system, whether it is only of the 40 in MetaStock or one you've created.  To do this open up your Power Console and go to the system you want to change.  From here click on the Stops tab.

From here you can add trailing, inactivity, maximum loss, and breakeven stops.  You can also test your strategies with a Profit Target if you'd like.  

Adding a 5 pt stop loss to the system test with Apple, provides a much different equity curve:

Here's a comparison with a 1 Percent stop loss.  

I actually thought 1% would be to tight of a stop before I tested it.  In the historical test it actually outperformed the 5% stop by almost 3% over our test period.  

On a final Note, if you are adding any type of Stop to your trading plan--Test it before you add it.s and the results of the stop will most likely surprise you.  

Technical Analysis: The Changing Landscape

Most Technical Analysis books were written in the 1970s -1990s which, by technology standards, is a very long time ago.  As technology has reshaped the Market Participant Cycle and how different groups access and trade or invest in the financial markets, this invariably has altered technical patterns.

Unfortunately most retail traders are still using the older books and reference manuals when they first start learning technical analysis.  Years later, often 20 years or more, these retail traders are oblivious to the technical pattern changes as they are simply not aware of them, or are so focused on searching for the patterns they were accustomed to finding in abundance, that they skip over the new technical patterns that expose pre-momentum and pre-velocity action before big price moves.

This can cause late entries, whipsaw trades, and lower profitability. Many retail traders grumble about lower profits and more difficulty finding great stocks to trade. They blame it on what they have been told is happening in the markets: volumes are declining for the big exchanges, Dark Pools are taking all the liquidity, and HFTs are causing all the volatility.  Most of this information has been inaccurately reported and leads to misinformation.

Retail traders, especially those who have been in the market for decades and learned the older style of technical analysis, are now at an extreme disadvantage.  They have spent a lot of money and time learning technical patterns that are slowly but steadily disappearing or are altering sufficiently to be unrecognizable.

A prime example is the huge decline in true Head and Shoulders and Inverse Head and Shoulders Patterns.

H&S tops and Inverse H&S bottoms used to be so common that everyone knew these patterns and could quickly act on them. This created sufficient liquidity for strong momentum runs up and down, depending upon the pattern.

Unfortunately, these have been replaced by platforms, stairsteps, and velocity tops and velocity bottoms.  Rarely do you find a true H&S pattern and often these are either distorted and harder to recognize or fail to complete. Instead of indicating a top, Head and Shoulders topping patterns now mostly indicate a smaller-magnitude correction that adjusts out before the pattern can break though the neckline.  Or the head is so minor that there is insufficient downside point gain potential to create a true down-trend.  Mostly what would have developed into an H&S pattern ends up becoming a trading range.  

Why have the older-style technical patterns changed or slowly disappeared?

The Market Participant Groups have expanded. Where once there were only 3 Market Participant Groups to create the Dow Theory Cycle, there are now 9 Market Participant Groups. This massive market structure change inevitably shows up in charts and technical patterns.

With each new group, and their own unique technical footprint, the landscape of technical patterns is changing. What once was will not return.  Learning these newer patterns is critical to improving trading success in today’s market.

The market structure is continuing to change at an unprecedented pace and this will continue to alter known technical patterns and create new patterns as technology alters how the institutions, Buy Side, Sell Side, HFTs, Hedge Funds, Small Funds, retail crowd, and others trade stocks, options, and derivatives.

Check out this video on Relational Analysis for understanding the modern market structure at play in trading activity today.

Trade Wisely,

Martha Stokes CMT

www.TechniTrader.com

www.MarthaStokes.com

Chartered Market Technician

Master Rated Technical Analyst: Decisions Unlimited, Inc.

Instructor & Developer of TechniTrader Stock Market Courses

MetaStock® Partner

© 2014 Decisions Unlimited, Inc. DBA TechniTrader®. All rights reserved.

Disclaimer: All statements are the opinions of TechniTrader, its instructors and/or employees, and are not to be construed as anything more than an opinion. TechniTrader is not a broker or an investment advisor; it is strictly an educational service. There is risk in trading financial assets and derivatives. Due diligence is required for any investment. It should not be assumed that the methods or techniques presented cannot result in losses. Examples presented are for educational purposes only.

What is Correlation Analysis?

Price Oscillators, Trading Styles, and Market Conditions

In my last webinar I talked about ways to use indicators that lead big price action.

The most common indicator that many traders first consider is a price oscillator.  But price oscillators are not all the same. There are as many kinds of price oscillators as there are price patterns.

There are many price oscillators and many formulas for various price patterns to consider.

1. Momentum price patterns
2. Overbought and oversold price patterns
3. Relational price action
4. Range Bound Price action
5. Breakout compression Price patterns.

Stochastic, as an example, is comparing prior end of day close to current end of day close to determine whether a stock is closing lower and lower or higher and higher on each day as it moves. For the upside, George Lane believed that this was a good way to determine that buyers were fading which would mean the stock was “overbought” and ready to cycle down again. Lane’s work focused on the trading range or sideways patterns. Lane used an 80% high range and a 20% low range to quantify the overbought and oversold conditions.

Price Rate of Change is a momentum oscillator that measures price from one period to another period of time.  PRC, aka ROC, measures the difference between the current price and the price X number of days ago to expose momentum energy in a stock’s current or recent price action.

%B is a relatively new indicator from John Bollinger CMT, who wrote the magnificent Bollinger Bands.  %B is a relational oscillator based on the high and low levels of the Bollinger Bands.

There is also Wilder’s Relative Strength Index which is not an index at all but compares price relationships in a unique way.  It compares the current price to the price X periods ago within a 70% high and 30% low range.

Williams %R is a variation of RSI, so it is an adaptation, not an original indicator. Always use the original primary indicator, not some mildly modified version of that indicator.

What this means to you as a trader is that you need to first understand what the indicator writer was intending to have the price oscillator REVEAL, how it works, what market conditions are best suited for that indicator, and what SETTING you should use for your personal trading style.

Day traders will use different settings than a momentum or velocity trader. Swing traders will have slightly longer settings than a momentum trader, and position traders will use periods that are longer than swing traders use.

When you go to choose a price oscillator or ANY indicator for your trading, don’t just rush to use what is taught in a webinar or what you hear other traders use, you need to first consider the proper application for that indicator.

As an example: a momentum indicator should be used during velocity and moderately trending market conditions. It should not be used in a trading range or sideways market.

Platforms should use RSI which is better at revealing the compression of price before a breakout.

%B is perfect for those who use Bollinger Bands but also need a price oscillator that tracks sudden momentum action after quiet price action.

To learn more about leading indicators, sign up to check out this video.

Trade Wisely,

Martha Stokes CMT

www.TechniTrader.com

www.MarthaStokes.com

Chartered Market Technician

Master Rated Technical Analyst: Decisions Unlimited, Inc.

Instructor & Developer of TechniTrader Stock Market Courses

MetaStock® Partner

© 2014 Decisions Unlimited, Inc. DBA TechniTrader®. All rights reserved.

Disclaimer: All statements are the opinions of TechniTrader, its instructors and/or employees, and are not to be construed as anything more than an opinion. TechniTrader is not a broker or an investment advisor; it is strictly an educational service. There is risk in trading financial assets and derivatives. Due diligence is required for any investment. It should not be assumed that the methods or techniques presented cannot result in losses. Examples presented are for educational purposes only.

Creating Custom Toolbar Buttons in MetaStock

MetaStock includes an incredible number of trading strategies, methodologies, and studies.  In fact, there are so many tools available, that sometimes it can be a daunting task to stay organized. The good news is that there are some handy (and often underutilized) buttons that will help you keep your favorite set-ups just a click away. 

At the bottom of MetaStock is a toolbar with six buttons in a row.   These six buttons come pre-installed with some common templates included in MetaStock. 

One click on these buttons will launch a specific set-up, or template on the chart you are currently viewing.   It’s easy to create additional buttons or replace the existing buttons with your own configuration.  Here’s how you do it:

1.    Right click on one of the six Custom Toolbar buttons and select “Custom Toolbar Properties”.

2.    A new window will open with the list of pre-installed buttons.  To create a new button, click “New”.  To make a change to an existing button, select that button and click “Edit”.  In this example, I’ll be creating a new button.

3.    Another new window will appear and ask you to locate the template that you would like to attach to the new button.  Click “Browse” to select the template from your local folders.  (The MetaStock templates folder should automatically populate, but if it does not, the file path is “Libraries > Documents > MetaStock”).  

 Make sure that “Templates” is selected under the “Files of Type” drop-down menu.Select your template from the list and click “Open”.  Then click “Next”.

4.    Now you will be prompted to select an icon for your new button.  Click on the icon that you want, then name your button.   Click “Next”

 

5.   The final step is to name the status bar prompt.  Then click “Finish”.  Your new custom button is created! 

Customization is one of the hallmarks that makes MetaStock the wold leader in technical analysis. These helpful buttons are just one way to make your experience fit your individual charting needs.

TechniTrader Weekly Stock Review

The New Technical Bottom Formations

As Market Structure Changes, so too do Technical Patterns

Since 2008, the stock market and all of the financial markets from FOREX to Derivatives have been under massive structural changes. These include new venues, order types, order routing, data analysis, data documentation, compliance issues, and regulations. No part of the professional side has been left untouched by at least some of these changes.

The heaviest concentration of new regulations, venues, and orders has been in derivatives and stocks. Both financial markets are seeing changes not only internally, but also on the charts that most professional traders use every day. These new patterns are reshaping how the professional technical trader approaches trading with new trading processes, systems, and strategies.

Individual traders can follow their “big brother” lead, and learn the new technical patterns too. This will enable them to avoid unexpected price action, weaker picks, and potential losses.

The above chart of NTAP shows how bottoms are being reshaped, by the new orders that come from the many new venues for professionals. A traditional head and shoulders bottom which would have had a V shape shoulders and head, with volume dropping to the downside and rising to the upside on the right shoulder. Instead of a deep long head, this bottoming pattern has the distinct pattern that reveals Dark Pools are quietly moving in starting with the Shift of Sentiment exposed by the TechniTrader Quiet Accumulation TTQA Indicator in the bottom chart window. The black vertical line on the chart shows the base. This is where the Shift of Sentiment occurred, with Dark Pools taking control of price starting in late April.  The TTQA indicator reveals the Dark Pool activity well ahead of the final low. Notice that instead of a V the final low is shallower, with a flat base pattern which has become the most common bottom pattern of the Dark Pools.

Summary: Technical traders and individual traders must learn new technical patterns, and also Relational Analysis™ which is the understanding of the relationship between who controls price at any given level of a trend. By recognizing the patterns that each market participant forms when they control price, a trader will find trading far easier and much more rewarding.

Trade Wisely,

Martha Stokes CMT

www.TechniTrader.com

www.MarthaStokes.com

Chartered Market Technician

Master Rated Technical Analyst: Decisions Unlimited, Inc.

Instructor & Developer of TechniTrader Stock Market Courses

© 2014 Decisions Unlimited, Inc. DBA TechniTrader®. All rights reserved.

Disclaimer: All statements are the opinions of TechniTrader, its instructors and/or employees, and are not to be construed as anything more than an opinion. TechniTrader is not a broker or an investment advisor; it is strictly an educational service. There is risk in trading financial assets and derivatives. Due diligence is required for any investment. It should not be assumed that the methods or techniques presented cannot result in losses. Examples presented are for educational purposes only.