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TechniTrader teaches "Stock Charts Technical Support and Resistance" by Martha Stokes CMT 

The Effect of Market Participant Groups on Stock Charts

Technical Support and Resistance is the foundation of good, profitable trades consistently over time. Any trader can have the periodic big gain trade, but it is the consistent trader who makes a living from the Stock Market.

Support and Resistance are relevant to price patterns and Market Conditions. For example a Bottoming Market Condition has pent-up energy building, from the draw of liquidity by hidden Dark Pools buying bargain priced stocks in an accumulation mode. Therefore  that resistance that would usually stall price or cause it to retrace, and can be easily pushed through with momentum action.

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In the market today there are classic Dark Pool Buy Zone™ bottoming formations. The problem is that these bottoms are a collison between the following three powerful Market Participant Groups:

1. High Frequency Traders HFTs driving price down with huge quantities of orders sent to the exchanges on the millisecond, that they generate an imbalance between the buyers and sellers, which either gaps the stock or runs the stock.

2. Smaller Funds are in capitulation mode as they either sell to get out of what they believe is a total loss, OR they sell as the stock moves up assuming that they are getting a “better price” for the sell of the stock. This is similar to the foolish “Buy on the Dip” strategy during a Bear Market. In a Bottoming Market, selling into a bounce is a great way to energize the Dark Pools buying.

3. Giant Buy Side Institutions using Dark Pools to accumulate, are buying into the final selling spree created by HFTs and their followers, who are the Smaller Funds and the Retail crowd. Buying the stock in larger lots than the other side is selling, halts the downtrend and commences the bottom. In addition liquidity shifts from sellers to buyers.

These three important Market Participant Groups collide in bottoms and in tops, with the winner always being the giant Buy Side Institutions using Dark Pools. 

The stock chart example below has the Dark Pool Buy Zone outlined in green. 

stockchart showing beginning dark pool buy zone candlestick pattern - technitrader

The momentum run down is Professional Traders. Their activity is technical and they are the easiest trade to ride with when momentum starts, as they always follow technical rules and they do not become emotional in the trade. Their Volume is moderate as their average trade size is 10,000 to 50,000 shares.

A Dark Pool Buy Zone in the collision area, will generate a lot of what appears to be impassible resistance. However what most traders fail to remember is that the “Buy Zone” is a buying zone, where the TWAP orders trigger intermittently set on Time and Price rather than Volume and Price.

The huge Volume surge in the indicator window, is a day of HFTs heavy orderflow. The HFT was attempting to sell down, but instead Dark Pools reacted to the sell and started triggering Time Weighted Average Price TWAP buy orders.

TechniTrader is "The Gold Standard in Stock Market Education." In the TechniTrader Learning Center on my TechniTrader.com website is a webinar about Swing Trading, which teaches how to get into the bottom of runs such as in the example of the next stock chart.

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  “Swing Trading Training Webinar


The momentum energy from the Buy Zone creates a three day Velocity Run, which is the favorite kind of run for Swing Traders. 

stockchart showing completed dark pool buy zone candlestick pattern - technitrader

The Velocity Run shifts to profit taking, as Smaller Funds and Retail Traders rush to buy the stock after the run is already well underway. Profit taking creates a shift to a sideways pattern, which is a Platform Formation. 

stockchart showing first platform candlestick pattern - technitrader

TechniTrader is "The Gold Standard in Stock Market Education." Find stocks like this example by using Stock Scans. On my TechniTrader.com website is a webinar about this:

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How to Use Stock Scans Webinar

It moves up as Platforms commonly do after a resting, high range compression. This is not going to be a Swing Style Trade here though, because the buyers at this level are Giant Institutions using Dark Pools once again in accumulation mode, and Professional Traders have moved on. Resistance is the reason. 

stockchart showing second platform candlestick pattern - technitrader

On the Weekly View chart the Technical Resistance is evident, and is the reason why Professionals have not continued to trade heavily. Volume over several weeks slips to a much lower level, and the Accum/Dist Indicator starts to float.

Summary

When a trader understand who is controlling price, then how Technical Support and Resistance will behave becomes easier to determine. Technical Support is created by Technical Traders. Fundamental Support is created by the Fundamental Investors who are the Giant Buy Side Institutions.

TechniTrader is "The Gold Standard in Stock Market Education." Visit the TechniTrader.com Learning Center for webinars available to the public about stock charts:

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stockcharts learning center webinars - technitrader

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Trade Wisely,

Martha Stokes CMT

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

TechniTrader.com

Chartered Market Technician

Instructor & Developer of TechniTrader Stock & Option Courses

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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. 

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