TechniTrader Stock Trade "Candlestick Patterns Bottom Market"

Market Participant Groups Control Price


Bottoming Market Conditions are frequently considered “volatile” as the intraday and day to day activity can be up and down, with what appears to be random price action. However if this price action were studied more closely, it can actually reveal the candlestick pattern "footprints" of who is controlling price.

Most Technical Traders are taught that price is the most important aspect of a chart. This used to be true in the early days of stock chart analysis when data was not as reliable. In those days it was quickly assembled from various venues, cleaned, sorted, and then distributed to the few Market Participant Groups during the 1970’s-1990’s when Technical Analysis grew in popularity. Nowadays most people assume Technical Analysis is part of everyday trading.

Price however is not all the data available in order to analyze stock price action, in particular near term price action. What also should now be included is Quantity data, which is both total Volume for the day and how much of that total Volume was larger lots versus smaller lots.


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In a Bottoming Market, Quantity and Volume Indicators provide invaluable information to the Technical Trader about who is in control of price, and if giant lot buyers are present or not. 

Market Participant Groups that are highly active in a bottom are the giant Buy Side Institutions, Sell Side Institutions, Professional Traders including Proprietary Desk Traders, private Floor Traders, and Independent Traders. Nowadays Buy Side Institutions have their own floors of Professional Traders. 

Buy Side Institutions prefer to enter with controlled orders, hidden from the exchanges in Dark Pools. Their orders are bracketed to prevent predatory systems manipulation. 

Professional Traders are expert Technical Traders using their own undisclosed privately developed “systems” which are not redlight/greenlight as Retail Traders like to use, but are pure technical analytics. The Spatial Pattern Recognition Skills™ of a Professional are extremely high.

So there are two types of buyers that dominate, forming the Candlestick Patterns in a Bottoming Market. There are Buy Side Institutions, who control price so well that I call it a Dark Pool Buy Zone™ as these become a very precise price range. There are also the Professional Traders, who want to move price. The Professional Traders tend to create the Momentum and Velocity runs, that Retail Traders and non-professional Technical Traders enjoy with Swing and Day Trading.

The chart example below is a good example showing both types of price action.

CF chart exampe - TechniTrader 
In analyzing this chart first look to see that the concentrated buying power of the Dark Pools, creates a Basing Bottom Formation which halts the Downtrend.


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Then runs begin moving up with higher Volume, and there is a steady rise in minor profit taking retracements or consolidations which are typical of the expert Professional Traders. Technical and Retail Traders should endeavor to trade with the Pros, as these are reliable runs with rising Volume. The key element to always remember is that Professionals are technical experts. They will take profits ahead of resistance, when their propriety aka black box indicators they develop and use tell them the stock is rising too quickly to sustain, or that the Dark Pools have halted buying as the stock moved up.

Summary

All Retail and Technical Traders can learn to identify Candlestick Patterns in a Bottoming Market, to determine who is controlling price during all of its phases. Keep in mind that bottoms for many industries and their component stocks will take a long time to develop, due to the contraction of that industry overall.

Some stocks move down in sympathy moves into extreme lows. These will recover more rapidly and will tend to have more momentum behind the runs, as Dark Pools are willing to pay higher prices for a stock they deem undervalued.

Bottoms form on all 3 timeframes which are short term, intermediate term, and long term. Traders need to determine which of these timeframes the bottom is forming within, so they can determine how long it will take to complete. This stock example has not yet completed its bottom.


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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
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