Identifying Market Participant Groups by Patterns
The StockCharts.com indicator Accum/Dist was designed to help track the large lot activity versus
the small lot activity. Decades ago when the concept of distinguishing between
the large lots versus small lots started being discussed by the Sell Side
Institutions, the Stock Market was an entirely different Market Structure.
Almost all orders
were filled on the exchanges via Market Makers. Few were filled off the
exchanges via dealers and professional side brokers. The only access the retail
crowd had was through a broker who typically charge $75-$100 per
transaction.
There were Mutual
Funds in the market but no Pension Funds and the number of Market Participant
Groups was 5 not 9, so the interpretation of this indicator was simpler. Thus, what
you read everywhere is based on that era.
Now the Stock Market
is more complex because there are 9 distinctly different Market Participant
Groups which each have different order types, venues, order sizes, agendas, and
vast disperities of knowledge and INFORMATION. By the time the retail crowd
gets the news, it is old news to just about every other Market Participant
Group.
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If you want to use
accumulation indicators you need to approach their use properly for the current
Stock Market of today, not what it was many decades ago. If you use outdated
training then you will be wrong much of the time in your analysis.
When analyzing a
stock using Accum/Dist you MUST use Relational Analysis™ because is more
complete. This type of analysis combines Price via Candlestick Patterns, Trend
and Trendline Patterns Volume, and Accum/Dist as shown in the chart example
Amazon.com, Inc. (AMZN: NASDAQ) below.
The footprint of each
different Market Participant Group is in the combination of these on the chart
and can be found in Price, Volume, and Accumulation/Distribution.
Price shows use the
magnitude of the daily price action which tells us whether it was contained and
controlled via Time-Weighted Average Price TWAPs OR if High Frequency Traders
HFTs were creating huge price action as one example. Each group has its own
candlestick amplitude that group creates, often deliberately based on the ORDER
TYPE they prefer to use and the VENUE they typically use.
Trend and Trendline
Patterns tell you who is trading OR investing in the stock. Dark Pools do not
buy stocks that are topping. They prefer to buy in bottoms and their Buy Zones.
Volume defines the quantity
of orders flowing through on an given day. Dark Pools deliberately use TWAPs
which fire off over a longer period of time, usually several days to weeks. So
their gigantic quantities are spread out lowering Volume rather than spiking
Volume. It is HFTs that spike Volume. Professional Traders ease Volume above
its average to entice Retail Traders into the stock. Smaller Funds tend to
surge Volume.
Accumulation is a consistent
buying pattern over time. One day of Accum/Dist or my TechniTrader Quiet
Accumulation TTQA indicator does not provide the analysis. The TTQA histogram
looks similar to the Volume indicator but can show contrarian patterns to
Volume. It is the appearance of the line or histogram, that tells you
whether the buying OR selling is incremetal and consistent meaning Dark Pool
activity OR if it is sudden and spiking.
As an example of how
to interpret the downward action recently for AMZN, there is a Price at market
open gap down on October 28, a Volume Spike, and a severe sudden Angle of
Descent™ on Accum/Dist which is a HFT footprint. Trend tells us that prior to
this Professional Traders moved price up but took profits as the stock formed a
short-term top, due to their profit taking into Retail Traders buying at the
first of October. This profit taking awakened HFTs.
So that pattern in
combination tells us this is NOT Dark Pools or Professional Traders, but HFTs
action. Over the next few days the stock runs down on Small Funds
Volume-Weighted Average Price VWAP orders, that trigger any time there is a
huge Volume spike. The spikes in Volume are always created by HFTs, not Dark
Pools who spread out their buying or selling to avoid this pattern.
Then AMZN price falls
into a Dark Pool Buy Zone. HFTs attempt another big sell down day on November
10, but this time that fails as the Buy Zone triggers TWAP orders moving price
up along with Proesssional Traders intraday buying.
Smaller Funds VWAPs
sell the stock down again on November 14, but they are unaware they are selling
into a Buy Zone which is clearly defined in the stock chart via Price, Volume,
and Accum/Dist indicator. Professional Traders move stock out of the Buy Zone
even as Smaller Funds continue to sell.
Summary
In order to use
Accum/Dist properly you must know what Price, Volume, and
Accumulation/Distribution Pattern each Market Participant Group creates on
the chart. Just seeing Accum/Dist tick upward does not tell you enough, because
you have no idea who ticked it up. Dark Pools prefer to accumulate in the
summer, because retail is busy on vacation and most in the retail group thinks
it is a bad time to trade stocks.
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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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