Tuesday, October 28, 2014

Employee Spotlight: Kevin C

Name: Kevin Cross
Time with Company: 2004-2012, 2014-Present

Area of company works in: Development

Do you trade in your spare time: I'm a software developer by day, but In my spare time I live the life of a monastic monk, free of all worldly possessions.

Favorite part of your job: It's a tossup between the challenges I learn from every day, the great people I work with, or spending my lunch hour on IMA's private llama refuge.

Favorite Quote: “Success consists of going from failure to failure without loss of enthusiasm.”
Favorite Color(s): Skittles.

Monday, October 27, 2014

Technical Analysis vs Relational Analysis

Relational Analysis Using Stock Charts Is Revolutionizing How Traders Interpret Price Patterns

Since the collapse of the stock market in 2008, the entire internal Market Structure has been undergoing massive changes. Much of the reconstruction was due to a flood of new regulations, restrictions, and compliance requirements for both the Buy Side and Sell Side Institutions. This altered how both Institutions now influence price and therefore technical patterns that retail traders had been using on stock charts.

Relational Analysis™ is the evolution of Technical Analysis that incorporates more data into the stock chart, to enable retail traders to keep up with the onslaught of changes that are often invisible to them due to their constrained position within the market. Most of the time retail traders deal directly with their online retail based brokers. These brokers fill the retail order internally from their inventories if the stock order is for a big blue chip or popular stock, and then send orders they are unable to fill through a known High Frequency Trader HFT venue. This practice is being investigated by the Securities and Exchange Commission SEC but until a decision and ruling is made, puts retail traders in higher risk as they enter or exit a trade.

Relational Analysis provides that fill of information which bridges the gap between what retail traders hear about on their retail side news feeds, and what is really going on inside the market in Dark Pools, HFT zones, and professional traders trading venues. The first goal of any Relational Analysis is to interpret who is in control of price, which gives you several pieces of vital information.

Knowing which Market Participant controls price tells you with a high degree of probability the following information:
  1. How price will behave in the near term due to how each group moves or doesn’t move price. Whether that group impacts the current short term trend or not.
  2. How long the trend will last. Sustainability of the short term trend for intraday, day, and swing or momentum trading is a crucial piece of information. Some Market Participant groups sustain a trend for a long period of time, others for a few minutes.
  3. The risk of the trade. Sometimes price action alone with MACD and other popular indicators will give buy signals, just as a stock is about to top. Risk factors are dependent upon who is controlling price, because this provides invaluable information regarding what level of resistance will stall or reverse price, and which support levels will hold price.

Below is a chart example of Nike, Inc. (NYSE:NKE)

There is plenty of Relational Analysis that can be done on this chart. The first is the HFT spike of Volume that caused the gap. The question is whether this was a true breakaway gap, or a running gap. Many times HFTs enter and control price at a trend level where the risk of a reversal is extremely high. Understanding the relationship between HFTs and the smaller funds who use Volume Weighted Average Price VWAP orders, helps retail traders see this risk factor. Volume declining as price moves up in a volatile pattern, is also relational to the smaller funds VWAP orders triggering and then fading away due to lower capital reserves.

Another aspect of Relational Analysis is the TechniTrader Quiet Accumulation TTQA which is intended to reveal who controls price as well. The TTQA is showing a Dark Pool Quiet Rotation pattern as the stock moves up. The Dark Pools will sell into a stock that is rising on HFT and Smaller Fund VWAP runs, triggering quietly in the background to avoid disrupting the run upward. The Dark Pools on this chart are selling as the stock moves up.

NKE has seen a steady decline in Percentage of Shares Held by Institutions PSHI, dropping over time to below 70% which is the percentage that distinguishes stocks at much higher risk of a top for a big blue chip company. Therefore when considering trading NKE to the upside at this time, retail traders must take into consideration the higher risk of Dark Pools selling as smaller funds are buying on lower volume. This can shift quickly the bias and trigger HFT action to the downside.

Trading with the smaller fund VWAP orders requires an understanding of how and why this group moves price. That way the retail trader can know in advance what to expect in the run, as well as where and when profit taking and rotation will turn the stock downward.

Trade Wisely,

Martha Stokes CMT

Instructor & Developer of TechniTrader Stock and Option Courses
This weekly stock discussion is sponsored by TechniTrader.com a MetaStock® Partner

©2014 Decisions Unlimited, Inc. dba TechniTrader. All rights reserved.
TechniTrader is also a registered trademark of Decisions Unlimited, Inc.

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.

Friday, October 17, 2014

The New Topping Formations: The Changing Technical Patterns Individual Traders Must Learn

The new venues and orders of Dark Pools, High Frequency Traders HFTs, Algorithms, Automated Orders, and Twilight Pools are changing the technical patterns that many traders and investors learned 10-20 years ago, and have come to rely upon. The alarming reality is that most technical traders are now falling further behind what the charts are actually telling them due to fact that they do not know these new patterns, and are utterly unprepared for how price will behave when these patterns show up on their charts.

Below is an example of the new types of patterns that traders are caught up in, and why more and more of them are losing money trading.

The candlestick pattern appears to be a strong reversal, and if only price indicators are used this appears to be a momentum move. The stock has broken through strong resistance, and is now moving higher with no resistance to hold it back. The price is well below the 100 whole number resistance level that often thwarts these runs, and gained 7+ points on its last run. Most swing traders would jump in at this point.

However studying the Hybrid Indicators warns there are problems within the run, that are not visible with just the candlesticks and price. First, the gap up was due to HFTs. This means that the subsequent run up was due to Volume Weighted Average Price VWAP smaller funds automated orders firing off, and individual traders chasing them. These groups weaken rapidly due to their lower capital resources, while volume confirms that their buying is fading. The most important indicator is the Volume Oscillator, which is the first indicator below the price chart.

The TechniTrader Volume Accumulation TTVA is showing a very weak pattern. TTVA tracks the consistency at which volume is moving into this stock, and how many large lots are buying consistently over time. This indicator exposes where Dark Pools are accumulating. However this indicator shows clearly that Dark Pools have been rotating out to lower held shares, rather than accumulating more. Also TechniTrader Flow of Funds TTFF shows the extreme risk pattern of a top.

The next few days the stock forms the New TOP formation that most traders are not expecting. This is called an Inverted U Shape Top. It forms on the short term trend and is caused by HFTs driving price up into the sell zone of the Dark Pools, who are quietly rotating out of this stock as it moves up. At some point the large lots selling overwhelm the smaller lots buying, and the stock runs down vertically faster than it moved up.

Many traders were buying stocks that were moving up to new highs prior to the recent correction, because they were unaware that all of the big blue chip stocks were showing similar patterns of Dark Pools rotating out or lowering their held positions. This is why so many individual traders are finding it harder and harder to make good profits regularly for monthly income.

Learning to incorporate the new Leading Hybrid Indicators that track the Dark and Twilight Pools is important for all individual traders. Dark Pools have highly sophisticated new orders that do not disturb price as they begin moving in or out. What that means is that any individual trader who is using the outdated older style price and time indicators, has no way of knowing that the Dark Pools are either buying in or selling out without disturbing the trend underway at that time.

Trade Wisely,

Martha Stokes CMT

Master Rated Technical Analyst for Decisions Unlimited, Inc.
Instructor & Developer of TechniTrader Stock Market Courses

©2014 Decisions Unlimited, Inc. dba TechniTrader.  All rights reserved.
TechniTrader is also a registered Trademark of Decisions Unlimited, Inc.

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.

Friday, October 10, 2014

Trading Problems Caused by Range-bound Price Patterns in Stocks

Trading Range Stock Market Condition
By Martha Stokes CMT

Trading Problems Caused by Range-bound Price Patterns in Stocks
We’re seeing many trading ranges developing in stock charts lately. What is a “trading range?”  It is a sideways pattern where a stock’s price moves up and down in a very wide range.  Usually any sideways pattern that is more than 7 to 10 points (dollars) wide constitutes a trading range.  Some ranges may be as wide as 50+ points for very pricey stocks. The typical range is 10-30 points.  
A trading range lopes up and down within a wide price range, moving sideways overall, due to the resistance at the highs of the range and the support at the lows of the range. We talked about Support in a recent stock review.
Resistance is like a ceiling for a stock price. It is a price level at which the market had been in agreement about the stock’s price for a time before a shift of sentiment occurred. As a stock moves up to that price level, depending on how long the price remained at that level, it will take a lot of sustained buying for the price to move up through it.
Often day traders, swing traders, and other short-term traders who are looking at micro-scale price analysis miss the fact that a stock is in a trading range because this particular sideways price pattern tends to last for a while.
A trading range can cause some nasty surprises in terms of whipsaws that appear to be random and totally unexpected when, in fact, the trading range resistance is the true culprit for that whipsaw.
Here is an example.
This is a daily chart of QR Energy (NYSE: QRE). It trucked on up and up until suddenly it reversed and fell steeply. Why?

Below is a weekly chart of the same stock. When you zoom out for a bigger picture of what is truly occurring with QRE, it is very apparent that this is a trading range bound stock, stuck in a wide sideways loping pattern. Within the wide trading range, there are intra-range resistance and support levels that catch the stock’s price movement and cause often unexpected turns within the range.

The chart above has far more price history and is telling you much more about what is going on with this stock.  As a swing or day trader, you are bound by the resistance and support levels within the range as well as the lows and highs of the range. This limits your point gain potential even on an intraday trade.
If you are unaware of these intra-levels of support and resistance, you could easily be in a trade, even intraday, that APPEARS to be low risk when it is truly very high risk and fraught with whipsaw potential.
Always study charts on many time frames so you can see the limitations of a stock’s price movement for better planning of trades. Then determine your strategy for trading that stock.  Do not go into a trade assuming that how YOU want to trade is the way the stock will behave.

Trade wisely,
Martha Stokes, CMT

Member of the Market Technicians Association
Master Rated Technical Analyst: Decisions Unlimited, Inc.
Instructor and Developer of TechniTrader® Stock Market Courses
MetaStock® Partner

Stock charts courtesy of MetaStock® with our thanks.

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

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. There is risk in trading financial assets and derivatives. Due diligence must be done before trading any issue. Students/ 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.