Monday, December 29, 2014

Anatomy Of A Stock Chart Bottom

Quiet Accumulation By Giant Institutions
Short term bottoms are often a sideways pattern that slowly rises out of the low. It can be hard to see the bottom developing because the price is moving in such a choppy up to down pattern each day, so much so 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 in the bottom chart window in the example below, to see if quiet accumulation by the Dark Pools is underway.
The chart shows that a bottom is clearly underway when you study the TTQA in relation to TT Volume Bars in the middle chart window. The top is defined by the High Frequency Traders HFTs triggering orders followed by many smaller funds rushing to buy. The green Volume spike to the top of the chart window and the heavy green TTQA is the footprint of the HFT Market Participants. The small lots and smaller funds create the top as professionals start taking profits.  As the stock falls into a correction, 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.
Summary:
Price will continue to move up and down during accumulation because the giant Buy Side 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 prepare to buy into the stock as it completes the bottom, and begins to accelerate with momentum energy.
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, December 19, 2014

121914 MSWeekly - Technical vs Fundamental Support Levels

One of the most wonderful aspects of studying charts and learning to read them properly is that the technical trader has the viewpoint of all the traders both professional and retail, who are employing technical patterns for their buying or selling decisions. In addition, anyone who is able to interpret and understand chart analysis also is able to see what the fundamentalists are doing. Fundamentalists who do not use Technical Analysis have many blind spots in their analysis which can be problematic.
There is a distinct difference between how price reacts to fundamental support, and how price behaves at technical support levels. By understanding whether fundamentalists or technical traders created a support level, the chartist can easily and quickly know who controls price and how price is most likely to behave at those levels in the near term.
This is a particularly important skill to develop for downtrending markets. Identifying the difference between fundamental support levels and technical support levels will help a trader prepare for “Buy To Cover” BTC price action and “Buy On The Dip” price. Bargain hunters can move in and disrupt sell short patterns. Also there are reversal patterns that are critical to recognize for closing sell short positions, and for entering stocks before they blast out of severely oversold conditions.
C:\Users\Adrienne\Desktop\TechniTrader MSWeekly 121914 image.jpg

Many technical traders make the mistake of assuming that all support levels are driven by technical patterns, and fail to consider the fundamentalist dominance in many price areas.  Simply applying Fibonacci, Gann, regression, speed, or other lines and patterns to a chart will not provide the reliability when fundamental support dominates over technical support.
Some fundamental support levels are obviously easy to identify such as all time highs and 52 week highs. Other fundamental support levels can only be identified by using indicators and price action analysis, in a relational approach that reveals Dark Pool as well as other large lot activity. Contrary to popular myth among technical traders, support levels are not precisely distanced. Support levels can and do occur at inconsistent percentages rather than precise percentage ranges.  
Often times technical traders will set up a series of levels for support, only to find they do not hold up and that price often dips into them during corrections or retracements. This can cause serious problems with stop losses, especially percentage style stop losses that are frequently hit due to fundamental buying or selling patterns not recognized by the technical trader. An example of such price action dropping through technical support levels is shown on the chart example below.  
C:\Users\Adrienne\Desktop\TechniTrader MSWeekly 121914.png
It is very common for fundamental support to not hold precisely at the highs or lows of that support, however technical support levels tend to be very precise.
When a technical trader recognizes the influence of fundamental buyers and sellers on price action and where these levels are developing, they are then able to modify their support analysis. This allows them to place stop losses at appropriate levels that will not be at risk of whipsaw action, which takes out many retail trader stop losses.
Learning to read charts properly involves far more than just reading a book on technical patterns or watching a webinar on various technical theories. To be an expert trader you must understand the intrinsic dynamics of the fundamentalists and the technical traders, where and why they buy, what orders they use, their share lot sizes, and how this creates support levels.
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, December 12, 2014

121214 MSWeekly - How To Recognize An Exit Before A Downtrend

Use Trailing Profit Stops
New and veteran retail traders must be keenly aware when entering or exiting a stock or option because this is where most losses occur. The better the entry and exit signals, the higher the profits. Taking the time to learn how to properly enter and exit a stock trade is something that will reap huge rewards for many years to come.
Exiting a trade is often a place where emotions are running high, even for a savvy veteran trader of 20+ years. If profits are soaring, the euphoria that sets in can make it harder to really see the price action and what is going on. Greed may take over and the desire to get just a little more profit may end up being the decision that wipes out all of the gains of the past few days for Swing traders. For Position traders the entries and exits are far more forgiving, the gains are significantly higher, and the risk is lower because the precision of a swing trade is not required.
What Swing traders need to remember most about exiting a trade is that once in profit use trailing profit stops, based on the technical and fundamental support levels on the chart. Fundamental support is always stronger than pure technical support. Next determine whether the run is momentum or velocity, as this makes a huge difference in where to place the trailing profit stop.
For the chart below the run is momentum. So the trailing profit stop needs to be below the prior day low or at a consolidation area because the candlesticks are constantly overlapping, and the wicks and tails are rather long and frequent. What is happening with this stock is the momentum run was triggered by High Frequency Traders HFTs as shown by the high volume bars in the TechniTrader Volume TTVA indicator in the middle chart window, and then chased by smaller funds and retail traders. Price is too steep to sustain, and the Angle of Ascent™ will cause the stock to fall.
C:\Users\Adrienne\Desktop\TechniTrader MSWeekly 121214.jpg
Many retail traders may want to hold on hoping that the stock will run higher. However indicators warn holding too long may be a high risk decision in terms of how much profit is kept, as the stock begins to fall due to profit taking.
This stock has been under profit taking mode since the black candle within the run. It now has many little weak indecision day candles, these are not hammer candlesticks. These are the newer candlestick patterns that expose how large lots are controlling price even as the smaller funds and retail traders are buying speculatively. TechniTrader Quiet Accumulation TTQA is green but that is not a Dark Pool giant lot pattern. The giant lot Institutions are selling very carefully so they are not disturbing price. However the stock is losing energy aka Volume so this run is exhausted, and at risk for profit taking.
At this point the exit should be to simply exit the trade, but many retail traders will hold on rather than taking profits with the larger lots. Retail traders often try to “get out at the top” of a run rather than collecting their profits and moving on to a lower risk trade. Study the small candlesticks to see that many times HFTs come in and then sell off in one day. Since retail traders are not able to trade the millisecond like the HFTs, by the time they enter their sell order and the order is processed the stock can move down very fast causing a loss of profits.
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, December 5, 2014

120514 MSWeekly - Buying Into Strength

Limit Orders And Bracketed Orders
“Buying Into Strength” is a standard professional strategy that helps traders avoid whipsaw action and temporary retracements, caused by large lot profit taking. The chart examples below are to explain how Buying Into Strength is the preferred choice of Professional traders, rather than using a Limit Order that gets you in at “a better price.”
Below is a Daily chart view which shows a consolidation, then a little move up followed by another consolidation. Say for this example you are trading the swing style resting day entry patterns, and feel this may be a good entry point before the stock moves up again.  

The rule of entry is Buying Into Strength. However you have heard other traders talk about getting in on a Limit Order, which says “Buy Me In At This Price Or BETTER” which means “LOWER” in the marketplace. For this example you feel pretty good about this new strategy, so you enter a Limit Order to buy into this stock.
The next day the stock drops and the order is executed. You’re not too worried because you are confident this stock is trending up, and you are using your favorite indicator MACD which is a momentum moving average based indicator.
C:\Users\Adrienne\Desktop\TechniTrader 120514 MSWeekly MACD image.jpg
You hold for several more days but the stock continues to move down rather than up. A big engulfing black candlestick forms and you either sell out at a small loss, or you hold on desperately hoping that the stock will reverse.
Those who would choose to hold hoping it would turn around, find themselves losing even more money as the stock drops further. Now by this time most short term retail traders have given up and sold out.

The reason for lost capital is because buying into weakness using a Limit Order allows the computers of the market to buy you in as the stock is falling in price.  This is not a good idea.  The notion is that traders can save money with a Limit Order, but more often than not the above scenario happens. Limit Orders are usually used improperly by retail traders, and are the cause of many poor trades.
Buying Into Strength means the following:
1. Analyzing the strength of VOLUME and giant Institutional buying activity in Dark Pools, to determine that the stock is indeed going to move up and has enough strength to sustain that move.
2. Using a controlled Bracketed Order that ONLY triggers if the stock does move up into your buy zone, and it also controls what you pay for the stock.
The Buy Into Strength bracketed order ONLY triggers when the stock moves up into your order price. Now you would be in a stock that is moving up making nice profits as shown in the same chart below two weeks later, rather than a stock moving down.

Summary:
This stock chart example did have upside potential. However many Professional traders took profits early and many retail traders got over zealous and started selling short, which caused a brief correction.  
The downside sell off in this stock was very brief because at the same time Mutual Funds were being invested, by those small lot investors who use Mutual Funds for their investing. This increased the money in funds accounts allowing institutional investors to jump in to buy on the dip, which shows in the indicator TechniTrader Quiet Accumulation TTQA in the bottom chart window.
The gap took the stock back to its original buy in price, and the stock ran up in a velocity run for 4 days. Notice that the TechniTrader indicators were weak on the initial setup but much stronger after the gap. In addition it is best to use leading indicators written for the automated marketplace of today, rather than MACD which is a lagging indicator.
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.