More Opportunities for Lower Capital Based Traders
One thing that is a
constant in the Financial Markets and especially in the Stock Market over the
past few years, is change. Everything about Technical Analysis is changing.
That is often hard for Retail Traders who trade from home, and Technical
Traders who are Semi-Professional Traders making a high income from trading
stocks, to keep up with all the changes.
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New Bottoming
Formations for Technical Traders and new Topping Formations too have been one
area of Technical Analysis that has changed dramatically, due to the plethora
of new order types for the professional side of the market. Not much has
changed however for Retail Traders using Retail Brokers, because retail
brokerages have commoditized everything.
Unfortunately for
many new traders, they do not realize that there is a huge difference between
“trading” aka entering an order in a broker software, and Technical Analysis
which provides superb entries and reliable exits. Most Retail Traders simply
use recommended stocks, so their Return On Investment yields are very low
compared to what a Professional Trader or Semi-Professional Trader earns.
Today
we will look at a chart example which is low priced, and often the price range
that beginners need to study or lower capital base traders prefer.
There is definitely
bias against under $10 stocks by many Retail Traders, but this is something to
set aside. The Securities and Exchange Commission SEC has a pilot forward test
program going on for “small cap” stocks, of which many trade under $10. The
goal is to increase liquidity for the giant Buy Side Institutions using Dark
Pools who requested this study. The spreads have been widened on the smaller
cap stocks in this test and so there is more energy, more momentum, and thus more
opportunities especially for traders who have limited capital resources.
This chart example
all time high is around $41, so it is currently a super bargain for giant
Institutions using Dark Pools at $6-7 dollars.
One of the new
Bottoming Formations for Technical Traders that develops when accumulation is
underway is what is called a “Basing Bottom” which TechniTrader Staff
identified, and have tracked and studied for several years now. It is usually a
short-term pattern that concludes with a sudden momentum accelerated price run
upward.
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Indicators that are
Volume based offer earlier convergence and divergence signals, and confirm the
presence of Dark Pools. The key to recognizing these patterns as a Basing
Bottom, is to understand the goals and intent of the giant Institutions who use
Dark Pools and Twilight Pools to hide their huge lot orders.
This allows traders
to enter the stock before price runs, or gaps up and runs. Early signals in
candles and indicators is crucial to being able to use the Basing Bottom for
Momentum Runs.
The giant Buy Side
Institutions intent of the purchase is to:
1
1. Buy a stock at a bargain price before others realize the company is turning
itself around, and in future Earnings Reports the company will have
strengthening Fundamentals.
2
2. To NOT disturb the trend or price action. Dark Pools who buy millions of
shares of a company over an extended period of time used to show up on the
exchanges. Consequently Small Order Execution System bandits of the 1980’s, as
well as Retail and Professional Traders of the 1990’s could see the large lot
activity. Now their large lot buying is hidden off the exchanges, BUT shows up
in your charts IF you know what to look for in Candlesticks and Volume based
indicator patterns.
3
3. When Accumulation is completed, they allow everyone else to move price
upward.
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Summary
All Retail and
Technical Traders need to accept the fact that Technical Analysis is evolving.
It is important to not be resistant to changes, and to be open-minded toward
learning the new patterns including new Bottoming Formations for Technical
Traders.
Technical Analysis is
not static, it changes and evolves as the Market Structure changes. We have had
more changes in Market Structure in the past few years than at any other time
in the history of the market. Therefore it is important to recognize that since
the Market Structure has changed, technical patterns are also changing.
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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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.
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.