Why Favorite Technical Chart Patterns Are No Longer Reliable
Many Retail Traders
are complaining that their favorite Technical Patterns no longer work, or work
some of the time but fail more often than not. Traders who have relied upon
Technical Analysis patterns that were identified, named, and written about
starting in the 1970’s are finding that these once very consistent patterns are
now questionable.
Is Technical
Analysis broken as many traders claim? It is not broken, and in fact
it is stronger than ever. What is broken is the fact that Technical Trader and
Retail Trader training for Technical Analysis has not kept up with the
changing Market Structure.
These market changes include
new order types, new venues, giant Institutions using Dark Pools in Alternative
Trading Systems, High Frequency Trading Firms with millisecond trading
capabilities, the Retail Broker Oligopoly, and Professional Traders First Of
Day - End Of Day trading.
Watch the Technical
Analysis webinar to learn the 6 primary market conditions, percentage of time each
occurs, how each impacts trading and investing.
How the professional
side now trades has left most Retail Traders far behind in the dust, with Technical
Analysis training that is outdated and not keeping up with the patterns now
common in stock charts.
Recently the Stock
Market encountered a new short-term trading condition called a “Void Trading
Condition.” Unfortunately the retail side of the market had no idea that the
giant Institutions automated orders which control vast quantities of stock and
liquidity, had slowed down so much that a void occurred. That meant many stocks
whipsawed, reacted strangely, and older style technical patterns failed.
Beginners watch
Basics of the Stock Market for New Investors and Beginning Traders 12 Webinar
Lessons.
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12 Webinar Lessons
Technical Analysis works, however the
candlestick patterns and indicator patterns have changed because how
professional trading has changed. Learning the new Relational Technical
Analysis which incorporates more data in to stock chart analysis is the
answer.
Relational Technical
Analysis builds upon the foundation of training from Technical Analysis,
and advances the trader’s skills to a professional level. Below is a chart
example of how to use Relational Technical Analysis.
Here is an
explanation of the Relational Technical Analysis happening in this chart
example.
1. The stock formed a
short term Basing Bottom™ which is created when giant Institutions using Dark
Pools, are quietly accumulating a stock within a specific price range to buy or
stop buying. The automated order type they use is generally called a Time
Weighted Average Price order. There are numerous variations of this
professional only style order, that can be placed via Alternative Trading
System venues which are Over-the-Counter orders. These orders search for
liquidity, and pull orders from everywhere because these are huge lot orders.
2. What happens when
High Frequency Trading Firms discover this accumulation is a Shift of
Sentiment™ from selling to buying, and the stock moves up with momentum for a
few days.
3. This is followed
by Smaller Funds of which there are many thousands. Smaller Funds use automated
orders also, however their orders are sent to exchanges and other venues rather
than Dark Pools. Their order type is based on Volume surges and are called
Volume Weighted Average Price orders, so once the High Frequency Trading Firm
creates a volume surge then Smaller Fund orders trigger. Smaller Funds lack the
massive buying power of the giant Institutions, and must rely on the retail
crowd or Professional Traders to move price. Their buying is the final phase of
the run up out of a Basing Bottom formation.
4. Now the stock
forms a Flat Top™ formation, which is a short-term sudden top after Professional
Traders start taking profits. Professionals taking profits sometimes triggers
High Frequency Trading Firm orders which can create sudden downtrend runs or
gap downs, but that did not happen for this stock.
5. Now the action is
a VOID pattern, because there is a lack of both buyers and sellers of any
importance. So the stock is forming many small Doji Candlesticks or tiny
Indecision Day Candlesticks, and has no momentum energy to drive it upward.
Summary
Relational Technical
Analysis™
helps traders interpret what is going on in a stock chart beyond the basics.
When you understand the dynamics behind the price action, traders can decide
when to enter, how to enter, and when to take profits for significantly higher
profitability with very low risk.
Go to the Learning
Center and watch a wide variety of webinars including Bollinger Bands, improve
MACD, Candlestick Patterns, and How to Create Scans.
Go to the
TechniTrader
TechniTrader
The Gold Standard in Stock Market Education
Trade
Wisely,
Martha
Stokes CMT
TechniTrader technical analysis using a TC2000 chart, courtesy of Worden Bros.
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.