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Entries in trading in stock market for beginners (6)

TechniTrader Beginner Stock Traders "Dark Pool Candlestick Patterns" 

Enter Stocks Prior to Velocity Candlestick Patterns

Dark Pools use precise controlled orders that trigger automatically over extended periods of time. Since the Buy Side Institutions using the Dark Pools are primarily buying for the long-term, price can sometimes drop down before moving up. This tendency often leaves Retail Traders on the wrong side of the trade. Using an indicator that exposes the Dark Pool incremental buying gives Retail Traders an edge even High Frequency Traders do not have. The Retail Trader Market Participant Group includes those who trade from home.

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Below is a chart example which was under quiet accumulation by Dark Pools for several months. During this period the stock slipped down slightly, but remained well within the “Dark Pool Buy Zone” that had been created. 

The enormous volume that occurred on the day of the High Frequency Traders gigantic gap up, distorts the volume indicator history. Below is the chart, showing how the volume indicator appeared prior to that big gap.  

High Frequency Traders attempted to sell the stock down a couple of times but Dark Pools were triggering buys during that period of time. Smaller Funds were following High Frequency Traders with Volume Weighted Average Price orders and often sold when they should have been holding. Smaller Funds managers typically have less experience and rarely use individual stock Technical Analysis for their buys and sells.

The Drop Down Pole Vault Candlestick Pattern, which is one of the new candlestick patterns that form due to Dark Pools triggering on a sell down by High Frequency Traders, was the pattern Retail Traders needed to be able to recognize. An ideal Springboard Candlestick Pattern formed for a good entry with low risk for Retail Traders. Then the stock experienced several days of fast running momentum and huge volume spikes.

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Often times Retail Traders who only learned a strategy and have been whipsawed out of trades, sometimes develop a belief that setting a specific point gain for a brief hold period is lowering their risk.

Unfortunately this strategy, which is very popular and taught in many areas of the internet has two major problems which are the following:

1. The shorter the duration of the hold, the higher the risk factors.

2. It limits your profits rather than letting a stock run as far as it will go.

Shorter duration trades increase risk because if the stock goes against you, your limited hold takes you out at a loss. Limiting profits is foolish. Professional Traders know that excellent runs with fast moving momentum should be allowed to run out with a volume exhaustion pattern or extreme pattern. By allowing a stock to run its full and complete run, Professional Traders rode this stock up for huge profits in a few days. Meanwhile most Retail Traders either exited too soon, or even taking a loss on an excellent trade that moved strongly.

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Trade Wisely,

Martha Stokes CMT

TechniTrader technical analysis using MetaStock charts, courtesy of Innovative Market Analysis, LLC dba MetaStock

Chartered Market Technician
Instructor and Developer of TechniTrader Stock & Option Markets Courses
This Stock Discussion and Training Lesson is sponsored by a MetaStock® Partner

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