List of What to Recognize in a Stock Chart for Position Trading
Many traders
do not have the time or resources to trade the most well-known styles which are
Intraday, Day, or Swing Trading. All of these styles require more time, a
higher capital base, and the ability to be trading early morning or afternoon
while the market is open.
Position
Trading provides an alternative that is actually more lucrative with less time,
after hours analysis, and entering the order when it is convenient for you.
Typically
Position Traders are trading with the most reliable Market Participant Group,
which is the Dark Pool Buy Side Institutions who are entering stocks with large
to giant lots. The hold time is anywhere from a couple of weeks to couple of
months depending upon the Target Gain Potential, which is the resistance that
will stall or reverse the trend.
The goal
of Position Trading is to find where the Dark Pools are quietly accumulating,
still unnoticed by High Frequency Traders HFTs, the retail crowd, and the
Smaller Funds participant group. Dark Pools are experts at hiding their large
to giant lot accumulation while they are acquiring the millions of shares of
stock they intend to buy. Once the word gets out they have been accumulating,
price can move with momentum often completing a bottom suddenly. To learn about
Dark Pools and High Frequency Traders go to the the TechniTrader
"StockCharts Learning Center" and sign up to watch those two
webinars.
"StockCharts Learning Center Webinars"
Position Traders need
to recognize:
Dark Pool Quiet
Accumulation
This is a tighter
sideways action within a Dark Pool Buy Zone™ range which is a narrow, precise
price action contained within a set price range. Accumulation triggers their
Time Weighted Average Price TWAP orders as the stock drops in to the Buy Zone.
The buying triggers automatically cease if the stock rises or falls out of the
Buy Zone.
Bottom Completions
Most bottoms take
time to complete due to the methods Dark Pools use to acquire stock over many
weeks to several months. Being able to identify a completed bottom is crucial
to a Position Trader entering before price moves out of the Buy Zone, but not
too soon when the stock will continue moving up and down within that
range.
Indicators
Using Indicators
which confirm that accumulation is present, and also that accumulation is
increasing even while price does not reflect the increase in buying are
mandatory for a Position Trading proper entry.
Resistance Analysis
Resistance level
analysis is also important to be able to accurately determine. Resistance can
be very weak, weak, moderate, or strong. Bottoms due to accumulation often
conclude with a sudden breakout run, overcoming moderate resistance with ease.
Position Traders must already be in the stock before that occurs for optimal
profitability and lower risk.
Risk Assessment
Risk assessment is
also crucial and often overlooked by retail traders. Assessing the risk factors
include Target Gain Potential versus proper stop loss placement. A Position
Trader must use a stop loss that is not based on percentages but on the Buy
Zone dimensions. If a stop loss is placed improperly it increases risk factors.
Position Trading can
be an enjoyable part-time trading style that is ideal for anyone who has less
time to spend on trading, cannot trade stocks every day, and needs more
flexibility in how and when they study stock charts, set orders, and monitor
held positions.
Trading Position
Style takes the stress out of trading, is significantly lower risk than Day or
Swing Trading, and makes higher profits with more consistent results.
The chart example
below shows a stock in the early stages of a bottoming formation.
Dark Pools have established a Buy Zone and Professional Traders are also actively buying in anticipation of HFT sudden breakout patterns. Money Flow Index MFI and Accum/Dist Indicators show consistent Time Weighted Average Price TWAP orders triggering with pre-established quantity buy orders.
The first tier resistance is at 9.00 approximately, which is a weaker resistance level due to the bottoming action. This is not a good candidate for Day or Swing Trading as the runs are confined to the Buy Zone which is very narrow.
Watch the TechniTrader
Red lines drawn on the chart are approximate levels of resistance which is likely to move the stock sideways for a period of time, but is not an exit point for a Position Trade. Strong resistance forms at around 34.00 approximately, and this level is stronger resistance. Therefore the Target Gain Potential for this stock once it completes the bottom is 34, for a potential gain of 24 points. Hold duration time must be determined as well as risk analysis and assessment factors. This is just one example of the type of chart Position Traders would consider for a watchlist, as a possible potential future entry upon its Bottom Completion.
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Trade Wisely,
Martha Stokes CMT
TechniTrader technical analysis using a StockCharts chart, courtesy of StockCharts.com
Chartered Market Technician
Instructor & Developer of TechniTrader Stock and Option Courses
TechniTrader DVDs with every course.
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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.