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"Market Participant Groups Cycle" Candlestick Pattern Explained

Market Participant Groups Move Price in Specific Ways

The Market Participant Groups Cycle occurs in visual candlestick patterns on the charts, and analysis should be confirmed with appropriate indicators. The following is a break down of how Market Paticipant Groups Move Price in Specific Ways, with the groups name in the cycle. The Index chart example below shows their footprints.

Prior to this short-term bottom, the index had been in a weak Trading Range wide sideways pattern after a “fake rally," brought about by the Retail Traders Market Participant Group and the Smaller Funds Market Participant Group. The rally failed to break through the resistance highs, which was a critical factor in analysis of this Index at that time. Coupled with lower Volume, inconsistent runs, and a lack of Dark Pool Accumulation continuation patterns the fake rally collapse was obvious even before the steady lower highs.

The collapse of the fake rally caused many Smaller Funds to panic and start selling, as their portfolios could not manage the selling spree initiated by the High Frequency Trading Firms Market Participant Group. This fueled the selling, with of course retail news spurring smaller investors to fear and panic as well.

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Stocks plummeted to the prior low Dark Pool Buy Zone™ around 15,500. The Dark Pools of the Buy Side Instiitutions Market Participant Group had orders of Time Weighted Average Price TWAP that were waiting to trigger large lots of 100,000-400,000 and giant lots which are over 500,000 to buy specific index components at bargain prices for Fundamentalists. There are many large to giant lot orders still moving through the automated market system, but you just cannot see them anymore as they are ALL off-exchanges.

The Buy Zone for the Dark Pools was fairly wide and halted the selling panic quickly.

A true rally followed with Buy Side Institutions using Dark Pools raising their Buy Zones range. This was instigated as Fundamentals slowly caught up to stock prices. The Index moved up to the prior resistance level and halted, as the Buy Side Institutions ceased buying well below that level which is their normal pattern.

A tighter formation developed which is outlined in green on the chart. This is a Platform Candlestick Formation, and is the pattern of a combination of Buy Side Institution Accumulation in bottoming stocks and Rotation in stocks that fundamentally are breaking down as their business cycle contracts well ahead of a Topping Formation. This is called “adjusting inventories to maintain Alpha” for that fund.

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High Frequency Traders caused the 2 day Sheer Cliff™ Topping Formation collapse. Volume Weighted Average Price VWAP orders triggered on high Volume and so Smaller Funds sell orders fired off. This hit Retail Traders stops, and prices of components fell at an Angle of Descent™ that was unsustainable.

Then Professional Traders jumped in buying, and created a Velocity Run which ran price back up. Professional Traders reacted because they saw the liquidity draw from the exchanges as Dark Pool orders surfaced when stocks fell into their Buy Zones again. The liquidity draw is something Professional Traders watch for, and you can see their footprints on the candlestick stock charts if you are using the correct indicators.

As the Index rebounded the Retail Traders and Smaller Funds remained firmly staunched in panic mode. Buy Side Institutions using Dark Pools, paused their orders as stock prices rose beyond their Buy Zones. 

Values stalled for a few days as the Smaller Funds dumped stock, which was countered by the Professional Traders buying. Then the values broke through the resistance barrier. Immediately, Professionals halted their buying to see if Retail Traders would suddenly shift their sentiment as they are known to do. 

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The activity next was Tiny Funds which are the funds with less than 5 million assets under management to Smaller Funds, and the Retail Traders as well as the Odd Lot Investors Market Participant Groups. The candles weakened instantly as the Professional Trader Market Participant Group ceased buying to wait for an opportunity to take profits. Stock prices wavered, candles shrunk, and the run rounded. Volume dropped as is typical when the Retail crowd takes control.

Summary

When you know who is controlling the price of a stock then you are able to trade with knowledge, beyond the mere candlestick pattern or indicator crossover which tend to give false signals at times. You know how price will behave as different Market Participant Groups react to news, facts, or information that other Market Participant Groups do not have access to.

Study a chart NOT just by looking at Candlesticks or Indicators but as a story that is constantly unfolding, telling you which of the 9 Market Participant Groups is in control of price at that moment. If you do, profitability and reliability of each trade will improve quickly.

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TechniTrader technical analysis using a StockCharts chart, courtesy of StockCharts.com

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