Candlestick Charts Support and Resistance

Bollinger Bands™ Need Additional Indicator Confirmation

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. It is in fact one of the most important areas of training needed, if you wish to go beyond Hobby Trading and have a monthly income that others envy.

Hobby Traders are content with 50% success rates, and often argue that is the best one can do. That is fine and there is nothing more to do, if you are happy there. I am not your educator, however.

For those of you who seek to trade as successfully as Professionals do, then learning the skills of accurately determining how current candlestick charts 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 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.

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 HFT gap down frequently occurs, and is often a surprise to Swing or Day 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 HFTs forcing the gap at market open due to Retail Trading news feeds.

chart example is moving in s platform sideways patter - technitrader

Bollinger Bands applied to the candlesticks has anomalies on them, due to the huge HFT 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 HFT huge gap up and long white candle, Dark Pool Quiet Rotation and Professional Trader profit taking occurred. This is seen in the ChiOsc and other 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. 

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 is stronger, due to several factors which are the following:

1.  Prior Support from prior sideways highs.
2.  Accumulation patterns.
3.  Consistency of price action within the 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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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.