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Entries in stock market for beginners (10)

"What is Technical Support and Resistance for Stock Charts" by Martha Stokes CMT 

Technical Levels are Caused by Market Participant Groups

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.

Go watch "How to Trade Dark Pool Buy Zones" webinar and learn to identify where giant Buy SIde Institutions are accumulating vast quantites of stock, that triggers High Frequency Traders huge gaps and runs.

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How to Trade Dark Pool Buy Zones

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 High Frequency Traders heavy orderflow. The High Frequency Traders were attempting to sell down, but instead Dark Pools reacted to the sell and started triggering Time Weighted Average Price buy orders.

Go to the Swing Trading webinar and learn how to get into the bottom of runs like what is shown in the example 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

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 Buy Side 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.

Go watch the Technical Analysis webinar with Candlestick Chart Analysis, How to Find and Analyze Stocks, Market Conditions, and Trading Styles.

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 Stock Technical Analysis Charts Webinar

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.

Go to the Learning Center and watch a variety of webinars including Candlestick Patterns, Bollinger Bands, Improve MACD, and How to Trade.                                    

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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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