By Learning to Recognize Who Is Controlling the Stock Price
There is a plethora
of training on Candlestick Pattern Analysis and interpretation, and yet this
remains one of the most problematic areas for Technical Traders who want to
trade at the expert level, earning high income from just trading stocks.
Once the basics of
Japanese Candlestick Patterns are understood, it is time to move up to the next
tier of analysis. That is being able to recognize not only where a pattern is,
but also who forms that pattern, why they are capable of creating that pattern,
what automated orders generate that pattern, and which Market Participant
Groups react or chase that pattern.
Nowadays it has
become critical to include Volume with Candlestick Analysis, because this
provides the basis for recognizing which Market Participant Group created that
candle pattern.
Candlestick Pattern
Analysis at the expert level involves more than just one to three candles,
instead it includes a larger group of candles in the near term. This is
especially useful for Swing Traders, Momentum Traders, Velocity Traders, Swing
Options Traders, and Day Traders using Swing Style Intraday action.
The chart below
is an excellent example of a Candlestick Pattern for Swing Style Trading.
Action over the last
seven days was not momentum. Price stalled right at the first tier of bottom
resistance which tends to be weaker when quantities of larger lots start to accumulate.
See where High Frequency Traders took control of price, and gapped the stock
down for one day. Selling did not continue the following two days, and Volume
was above the Exponential Moving Average, but much lower than the High
Frequency Traders spiking Volume pattern.
Go watch the Swing
Trading webinar to learn about precision entries and exits, and how to use
leading indicators to enter before price moves.
This was the first accumulation level for this stock. Dark Pools started buying the stock even though High Frequency Traders which typically miss this initial buy mode of the giant Institutions, drove price down in a second gap down. This was the next most important candle. This gap down opened the trading day, running down 5 points further over the next few minutes.
So within 10 minutes
of open, this stock moved several points. However the long tail reversal was a
key signal to Swing Traders, that this extreme pattern had entered a Dark Pool
Buy Zone™ of the giant Institutions. High Frequency Traders usually trade
during first 30 minutes of the day. Dark Pool orders are often delayed until
after Market Close or near the End of Day, which is also evident on an Intraday
Chart.
Dark Pools bought
into the selling spree instigated by High Frequency Traders in this chart
example. Since no Smaller Funds dumped and few Volume Weighted Average Price
orders triggered, the run up was a Velocity Run that ended at the lows of the
prior Buy Zone. Then the Institutions waited patiently, allowing the news of
their buying to leak out naturally which consequently creates more interest in
the stock.
High Frequency
Traders typically create the final gap down low, which if it reverses
quickly, indicates a Buy Zone area for the Dark Pools. The next phase will be
when Professional Traders and High Frequency Traders discover the Dark Pool
accumulation. The bottom is not complete, but it shifts sideways if more Dark
Pools decide to buy. Sudden Shift of Sentiment™ are common with these patterns.
Go to the
TechniTrader Learning Center and watch a wide variety of training webinars including
Candlestick Charts, Candlestick Patterns, Volume Indicator, and Technical
Analysis.
Summary
Learning to read more
of the chart pattern and understanding why price is behaving in a certain
manner, will help you interpret price action better. This will also help
prepare you for sudden breakouts of High Frequency Traders Momentum and
Velocity Runs, for both daily Swing and Intraday Swing Style Trading.
TechniTrader
The
Gold Standard in Stock Market Education
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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