How to Trade Stocks Profitably for Beginners
Market Participant Groups Form Trendline Patterns
Most Individual Investors and Retail Traders do not realize that they have a huge advantage over the professional side of the market. This is due to the constraints, restrictions, rules, and regulations the professional side must comply with on an ongoing basis. It is also due to the fact that 80% of the Professional Traders still do not use Technical Analysis.
Stock charts are the graphical representation of what the Market Participant Groups who use Fundamentals understand about a stock and its company at that time.
There are nine primary Market Participant Groups, and each group buys the stock at a different time during the up, down or sideways price action. Over a year or longer time period different Market Participant Groups will be highly active, or not buying the stock at all. When one or two groups are heavily buying or selling a stock, it is called “controlling the stock price.” Each group controls price in a specific way, creating easy-to-identify trendline patterns. When an Individual Investor or Retail Trader identifies who is in control they will know how to trade the stock, which Trading Style and Strategy will work best, when to enter the stock, how long to hold the stock, and when to exit the stock.
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In the candlestick chart example below it is very obvious immediately how precise and consistent the sideways pattern is over time. What is also noticeable are the gaps that follow the sideways pattern.
Sideways price action that is precise like this means that the buyers are dominant. They have a huge amount of capital reserves, buy with a controlled bracketed order that contains price within a narrow range, and eliminates momentum action and volatility. There is also an incremental pattern in the sideways action. Each sideways pattern prior to the gap or run up is nearly equal in time duration.
This is the pattern that giant Buy Side Institutions create when they use Dark Pool Alternative Trading Systems, consequently building Platforms as they slowly accumulate millions of shares of stock. The more Giant Funds that buy the stock, the more consistent the Platform candlestick pattern will be. The giant Buy Side Institutions are buying in incrementally over time and controlling price during their accumulation phase.
Once the giant Buy Side Institutions have completed their buying for that price level, it is obvious that High Frequency Traders automated orders trigger driving price up. High Frequency Traders can also make mistakes, as shown in the middle chart window with the TT Volume Bars extreme red spike which indicates an attempt to sell down the stock during accumulation. Smaller Funds always chase High Frequency Traders action. Often Retail Traders also chase High Frequency Traders action too not understanding the Market Participant Group cycle, and how it affects the trend and trendline patterns that form over time.
The stock was under heavy accumulation at the time the High Frequency Traders triggered order attempted to sell down. Since the Giant Funds have massive capital bases and a controlled order to buy incrementally, their orders overwhelmed the High Frequency Traders Sell Short orders rapidly and the stock continued to move up many months afterwards.
Learning to identify who is controlling price at any given time reveals a huge amount of information that is not available in retail news, guru recommendations, friends, or co-workers opinions about stock trading.
To be consistently successful Individual Investors and Retail Traders must learn and understand the Market Participant Group Cycle, and how that affects the stock trend over time. When this methodology is used, success at investing and trading will improve rapidly and consistently.
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Martha Stokes CMT
TechniTrader technical analysis using a MetaStock chart, courtesy of Innovative Market Analysis, LLC dba MetaStock
Chartered Market Technician
Instructor & Developer of TechniTrader Stock & Option Courses
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