Friday, November 21, 2014

2114 MSWeekly - Platform Compression Patterns

Platform Compression Patterns Are Ideal Entries
Sideways Market Condition For Swing and Momentum Traders
Platform compressions are ideal entries for swing and momentum traders, and identifying these compression patterns early is most important.
The stock chart below with candlesticks is a good example of three Platform patterns.  
The consolidations outlined in the green boxes are the Platforms, and the compressions are at the ends and have a purple line by them. This is a relational technical analysis pattern. The stock was under Dark Pool quiet accumulation by giant Mutual and Pension Institutions, which tends to form Platforms. Dark Pools create this sideways pattern with controlled bracketed orders, as they buy incrementally over time. The goal of the Dark Pools is not to disturb price. As they conclude their buying, High Frequency Traders HFTs find out and can push price up with momentum. Consequently these Platform compressions are ideal entries for Swing and Momentum traders, and they are often missed.  
A compression is a tight consolidation of candlesticks, rather than the wider spread of ones that make the Platform. It doesn’t matter where the compression forms, at the low or high of the Platform range, and it often precedes a decisive breakout and run or gap up. Then the stock resumes its sideways pattern as Dark Pools start buying at the next level.  
Bollinger Bands® can be used to assist in the identification of the compression, as shown in the chart below.
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.
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 as shown in the chart below.
Using different techniques and strategies during a sideways Platform market can help Swing and Momentum traders find more stocks to trade, with much higher point gain potential.

Trade Wisely, 

Martha Stokes CMT

Instructor & Developer of TechniTrader Stock and Option Courses
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