The Power In Platform Patterns

Sideways Candlestick Patterns Of Dark Pool Buying

The "Platform" is a relatively new sideways candlestick pattern formation, which is becoming more and more prevalent as Dark Pool activity increases. Dark Pools are Alternative Trading System ATS venues use by giant Institutions that transact giant lot orders off of the Exchanges. This is legal and actually benefits Mutual Fund and Pension Fund investors.

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The power in Platform candlestick patterns comes from always being a range but unlike a true Trading Range, the Platform tends to have much more consistency to its highs and lows. See the chart #1 example below.

chart example with high and low platforms

This high and low price range is seldom disrupted, but can be mostly by High Frequency Traders HFTs who do not recognize the footprint of their most sought after Market Participant Group. In not recognizing the footprint of the giant lot institutions who are mostly Buy Side Institutions, the HFTs trigger a brief sell off as indicated in chart example #2 below by the two red arrows.

chart example showing a hft triggering a brief sell off - technitrader

The attempt is quickly overwhelmed as the giant Institutions off the exchange orders trigger, when the price drops to the low of their price range. As the giant Institutions buy, their dominance moves price up within the range. Eventually Professional Traders, Smaller Funds, and sometimes HFTs will drive price up beyond the Dark Pools original high price for their buying.

The power in Platform candlestick patterns is due to it developing on stock charts because giant lot Buy Side Institutions and sometimes giant lot Sell Side Institutions, decide they want to purchase stock in a company. Let’s say they wish to purchase 50 million shares. They cannot buy all the shares at once as that would cause the stock to spike in price due to a sudden demand, and perhaps not enough shares being sold would further aggravate shortages of the stock to push price higher. So they use Dark Pools with a bracketed order system. These are automated and a computer triggers the purchases of 100,000 to 500,000 shares as long as the stock stays within their price Dark Pool Buy Zone™ range.
If the price moves higher than the range specified then the "Dark Pool accumulation" as this is called, ceases as the computer program will not trigger. They determine the bracketed price range for a stock based on Fundamentals. Most Buy Side and Sell Side Institutions do not use Technical Analysis for buying or selling. Once the price range is determined, their orders are set into an automated computer generated order system. If the stock falls below their bracketed price range, the computer stops buying the stock. So this creates a very precise high and low price range called the Platform candlestick pattern formation.

Summary

Whenever you see a candlestick pattern range with very consistent highs and lows as well as lower volume this is usually Dark Pool activity, especially if the stock is in a long-term bottom and this generates the power In Platform Patterns. As price moves up because other Traders and Market Participant Groups decide to buy the stock, you will see a compression of price. In the chart example the compression occurs on the low price, so price is closing higher and higher before the breakout.

This is an ideal entry pattern for Position Traders who are able to hold a stock for several weeks or months. It is also a useful for Swing and Momentum Traders, if they learn how to use accumulation/distribution and large lot tracking indicators.

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Trade Wisely,
Martha Stokes CMT
TechniTrader technical analysis using TC2000 charts, courtesy of Worden Bros.

Chartered Market Technician
Instructor & Developer of TechniTrader Stock and Option Courses
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