TechniTrader Stock Trading Education "Is Technical Analysis Broken?"

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. 

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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. 

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side now trades has left most Retail Traders far behind in the dust, with Technical Analysis training that is outdated and not keeping up with the patterns now common in stock charts.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.

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Technical Analysis works, however the candlestick and indicator patterns have changed because how professional trading has changed. Learning the new Relational Analysis which incorporates more data in to stock chart analysis is the answer. 

Relational 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 Analysis.

Here is an explanation of the Relational 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. 

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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.


Relational 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.

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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.