TechniTrader - Stock Chart Indicator "Bollinger Bands® Reveal Support and Resistance" by Martha Stokes CMT

Use Additional Indicator Confirmation with Bollinger Bands®


Support and Resistance training is one area where most Technical and Retail Traders lack skills. Most traders can read candlestick patterns, have read every book on candlesticks, or have taken tons of webinars on the subject. However when it comes to really knowing how a stock will behave in the near term based on candlestick charts support and resistance factors traders tend to struggle, causing losses or minimal profits on their trades.

Knowing with confidence and consistency how a Support or Resistance level will affect price in the near term eludes most traders. However it is in fact, one of the most important areas of training needed.

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For those who seek to trade as successfully as Professionals do, then learning the skills of accurately determining how Support and Resistance will factor into the price action is a skill you must develop.

The reason why Support and Resistance analysis is difficult for most traders is the fact that they assume it is always the same, however it is not. Support and Resistance change depending on WHERE the Support and Resistance forms in the stock Trend, what Trendline Patterns have formed recently, and the current Market Conditions.

A bottoming Market Condition will have so much momentum after Dark Pools cease their accumulation, that Resistance which would otherwise halt price is blasted through with surprising ease. Velocity runs are most common in bottoming action after a Dark Pool Quiet Accumulation phase.

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Support weakens even if it is wide as a stock heads into speculation, new highs, all time highs, and business cycle market saturation phases. These factors are usually overlooked as a stock runs toward its final high before a sudden collapse.

What is missing in the analysis of Support at this juncture of a Trend are Dark Pool Quiet Rotation™ patterns. Dark Pool Quiet Rotation is not visible using just candlesticks, MACD, or Bollinger Bands as indicators. It begins to weigh heavily on the stock price, as the runs move into the rotation selling zones. When this happens a sudden High Frequency Trading gap down frequently occurs, and is often a surprise to Swing Traders who did not see the rotation in the charts.

The chart example below is moving in a Platform sideways pattern after a gap up, caused by High Frequency Trading forcing the gap at market open due to Retail Trading news feeds.

stockcharts example platform candlesick pattern - TechniTrader


Bollinger Bands applied to the candlesticks has anomalies on them, due to the huge High Frequency Trading gap interference with normal price action. That has patterned out to some extent but Bollinger Bands do not reflect whether there is accumulation or rotation present in the current sideways pattern. 

Hybrid Indicators that include Volume or Quantity in addition to Price and Time in the formula, provide far more information about what is going on for Dark Pool activity.

Immediately after the High Frequency Trading huge gap up and long white candle, Dark Pool Quiet Rotation and Professional Trader profit taking occurred as seen in the Volume Bars and Accum/Dist indicators. However as the stock moves sideways, the rotation ceases. Even though there are several heavy selling days, the hybrid indicators bottom and start to rise. 

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The last 4 days are very telling. The stock broke out of the sideways pattern to the upside, and immediately the next day heavy selling occurred. However the indicators are not confirming a Shift of Sentiment™ to the downside. Therefore this was not a commencement of a Reversal. 

Summary

Support for this current Platform candlestick pattern is strong, due to several factors which are the following:

1.  Prior Support from prior sideways highs.
2.  Accumulation patterns.
3.  Consistency of price action within Dark Pool Buy Zone range.
4.  The type of gap that occurred.
5.  The Market Participant Group that is currently controlling price.



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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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