How Fundamental Support Forms

Identify New Candlestick Dark Pool Platforms

One aspect of Support and Resistance that many Retail Traders do not realize, is that there are two types which are Technical and Fundamental.

Technical Traders are Professional Traders, both the Floor/Desk Traders of the large Institutions and Independent Professionals who own their own trading house. High Frequency Traders are Technical Traders in certain Market Conditions. Retail Traders may be Technical Traders if well trained, however most just follow news or gurus and have scant technical training.

Fundamental Investors and Traders are the Buy Side Institutions, who use Dark Pools to buy and sell large to giant lots and block orders. Often trading short term are the Sell Side Institutions, and Smaller Funds. Small lot Retail Investors are negligible and tend to not create support levels. 

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In this week’s lesson the discussion will be how Fundamental Support Forms, which is support that is created when heavy concentrations of large to giant lots move into a stock and take control.

The chart example below in this article has a huge institutional interest, with over 90% of its outstanding shares held by Institutions. Therefore, the influence of the Dark Pool accumulation will show clearly on its chart.

Fundamental Support is present from the onset of the final move down. The initial light accumulation occurs as the stock moves up, in the downtrend. This is NOT buy on the dip. This is early bargain hunting by either Buy Side or Sell Side Institutions, whose intent is a long term position.

The moment the stock drops into a prior Dark Pool Buy Zone™ then accumulation commences, and is the beginning of how Fundamental Support forms. The stock dropping into a prior predefined Buy Zone initiates a series of hidden events. Time Weighted Average Price TWAP orders trigger automatically as the stock drops. The final spiking downside Volume is the trigger, as well as the price. Accum/Dist Indicator hits the bottom of the chart window, as an early signal that heavier concentrations of accumulation have halted the downtrend abruptly. Even HFTs fail to sell it down further.

The first two days pull liquidity and move price modestly, but still within the Buy Zone range. This is followed by another up day, and an upward spike of Volume. Then again HFTs and Technical Professionals chase the Dark Pool liquidity draw. Volume drops sharply on the final run up day.

The stock retraces as TWAPs cease, precisely at the high of the Buy Zone.  Buying resumes on very low Volume.

The stock falls to the low of the Buy Zone, and Dark Pool buy orders start again. HFTs trigger and run the stock up and down in the same day on extreme Volume, which is typical of HFT early morning action.

The Buy Zone triggers more Dark Pool orders moving the stock in an Indecision Day Candlestick pattern as Dark Pools seize control.



The next phase is when Dark Pools decide to raise their Buy Zone as their accumulation is not complete. They intend to buy more shares over time. After a brief move out of the Bottoming Buy Zone, price shifts sideways. This is one of the new sideways patterns that began showing up on charts as Dark Pool Alternative Venues became popular. The controlled order types the Dark Pools use defines a precise high and low range, not present in wider Sideways Patterns nor in Trading Ranges which both tend to have inconsistent highs and lows. The Platform is a fundamental support level created by the Dark Pools which use a controlled order. The order triggers to set a buy as the stock drops to the low and halts at the high of the zone, and this is how Fundamental Support Forms.

This consistency of highs and lows, provides a solid strong support level for the stock to move up. The Platform Formation is fundamental, because it conforms to a specific timeframe around Earnings Reports and is driven by Dark Pools.



Platforms are continuation patterns. The breakout occurs usually with a compression, which can be to the low of the range or the high of the range. If HFTs enter, these can result in gaps or long one day candle runs. For now, this stock continues to show more sideways action which is compressing.



Fundamental Support develops over a longer period of time than Technical Support. The runs up or down within the Platform are not useful to Swing Traders, due to the inherent constraint and control of price within a predefined range.

Summary

Oftentimes Swing Traders mistakenly try to trade Platforms, as MACD will signal a false positive entry cross-over signal. In order to avoid the whipsaw action of a Platform, Swing Traders need to wait for a breakout signal from Volume Oscillators or other indicators that reveal Professional Traders are entering the stock. When Professional Traders are active, the support shifts to Technical Style Support. Watch a webinar on how to improve MACD:                                              
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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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