Last week I introduced you to a trading style many traders don’t really know much about. Position style short term trading is the easiest trading style to learn, is the lowest risk, can be done with even a small capital base, and month over month can outperform day and swing trading in terms of net profits.
Position trading is the perfect trading style for people who are working or who have limited time to trade.
Let’s look at how this trading style works.
Below is a Chart of LAVA and it has been building platforms as it moves up. Platforms are a tight sideways pattern, wider than a consolidation but narrower than a trading range. The candles also tend to stack well, meaning they have relatively consistent highs and lows for the sideways action.
This differs from a trading range which tends to have very inconsistent highs and lows resulting in an unstable, volatile sideways price action.
This first chart shows green and red volume which help traders see the relationship between up and down days and volume. Colored volume also helps traders pick out which side is dominate in relation to the length of the volume bar. So comparing green to red volume helps you see quickly which side of the market, the buy side or the sell side is dominant even during a sideways pattern.
Below Volume we have the TTQA TechniTrader Quiet Accumulation which is an indicator developed just for MetaStock users that exposes quiet accumulation.
Quiet accumulation is the pension funds, mutual funds, and other large institutions quietly moving into a stock behind the scenes.
I just recently returned from a Symposium for professional Technical Analysts working with institutions also known as the “buy side” and banks, and other “sell side” entities. The discussion on Dark Pools by the presenters and panelists from these corporations and entities stated that they estimate that about 30+% of all large lot transactions are now done through “dark pools.”
This puts the day or intraday trader at a huge disadvantage as these large lot orders are not shown in real time but only after market close. This means position traders have a decided advantage now over day and intraday traders in terms of seeing what the large funds are buying incrementally over time.
As a position trader you want to enter the stock as these patterns form on your charts. The common patterns are green to gray for TTQA which is exactly how the quiet accumulation works.
Chart 1
The quiet accumulation is based on price range that is controlled by automated buy orders that control and bracket price so that the large funds buying incrementally do not move price.
Because they use bracketed automated trigger orders that control the price they pay, price holds within a much tighter more even formation. This is what forms the platform.
Below the chart shows TTVA TechniTrader Volume Accumulation which is a custom TechniTrader® volume oscillator designed for MetaStock users. You are probably familiar with RSI, Stochastic, PRC, and other price oscillators. In order to have a complete analysis you also need to use a volume oscillator with your price oscillators, otherwise your analysis will be incomplete and your stock pick selection will be problematic with chronic seesaw results.
Chart 2The top indicator is the TTFF TechniTrader Flow of Funds. This indicator tracks the money flowing into or out of a stock and is another way to confirm that quiet accumulation is steady and sustaining through the move up.
If you had bought this stock at $3.00 during the earlier accumulation period and it started to step back in March you could follow TTVA TechniTrader Volume Accumulation to see the W bottom that indicates this was a short term retracement and not a topping pattern.
If you have trouble seeing the platforms, simply use your MetaStock drawing tools and draw a rectangle around the sideways pattern. Platforms tend to range from 1-5 points in width.
Chart 3Finally, remember that oscillators were designed for sideways action and are great for platforms but when the stock moves in a trend of velocity action, the price oscillators will give a false sell signal.
Never use indicators as entry signals or exit signals, rely upon the candle patterns that work in the automated marketplace. These are NOT the traditional Japanese continuation or reversal patterns but candlestick patterns that for in our modern electronic marketplace.
Trade wisely,
Martha Stokes, C.M.T.
Member of Market Technicians Association
Master Rated Technical Analyst: Decisions Unlimited, Inc.
Instructor and Developer of TechniTrader® Stock Market Courses
http://technitrader.com
MetaStock Partner
(c)2011 Decisions Unlimited, Inc.
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