Quantity Indicators Allow For Early Entry
All indicators have limitations, market conditions where the indicator fails or does not provide a true positive or negative pattern, or simply is unable to keep up with the speed of momentum price or volume activity.
Bollinger Bands® are no exception. Bollinger Bands and the various other indicators written by John Bollinger CFA, CMT are excellent indicators, however all indicators have times when they lag behind price. The stock charts in this article are of Boeing Co. (NYSE:BA), see chart example #1 below.
This is especially true of indicators based solely on price and time data only, and do not include quantity in the formulation. Price and time indicators are the bulk of indicators available to retail technical traders. Therefore it is important to always include quantity and time indicators for chart analysis, and the hybrid indicators which contain all 3 data streams in the formula.
ATR is also a price and time indicator, but is an indicator designed specifically to expose volatility. Historical volatility exposes options pricing volatility levels, and ATR can provide additional interpretation and analysis of the current price behavior.
Price behavior that is controlled and tightly contained within a set price with smaller candles, is common after a High Frequency Trader HFT two day run. HFTs generally run a stock in the first few minutes of the market open, and rarely have two days in a row.
Adding quantity indicators to the analysis allowed for an early entry into this stock, ahead of the HFT action. See chart example #2 below with Volume, MFI, and Accum/Dist.
Tight compression patterns are indicative of a controlled buying pattern. The tighter the pattern sooner the breakout is likely to occur. Platforms and consolidations are generally the realm of the Dark Pool giant and large lot institution, either quietly accumulating or quietly distributing. Using Relational Analysis™ to interpret what is going on by looking back in time to when the HFT’s selling failed as Dark Pools moved in during October, it becomes obvious where the Dark Pools have entered this stock several times prior to the huge run of January. Although there is plenty of short term profit taking by professional and proprietary traders, the stock is maintaining its level. Indicators are flat rather than declining rapidly for the hybrid indicators.
The common gap down on January 27, 2015 is the effort of retail traders trading the wrong side, against the Dark Pools they can’t see. This immediately triggered pre-market morning buying from Dark Pools, who are now using pre-market venues to enter ahead of any disruption from HFTs. The gap occurred at the beginning of the day. At the end of that day, Dark Pools entered the stock causing the higher close for that day. The next day HFTs gapped the price up.
Checking intraday for the past several days on a 30 minute chart, reveals profit taking is evident but underlying hidden buying holds the price within a narrow range. Shift of Sentiment™ has developed beneath the visibility of price and time indicators.
Trade Wisely,
Martha Stokes CMT
www.TechniTrader.com
info@technitrader.com
