The British Brexit Vote: How to Use Extreme Market Action to Your Advantage
Black Swans are events that are not expected by the professional side of the market. Although Brexit was in the news for a couple of weeks and the probability was hashed about by retail news media websites, the institutional side of the market was quiet with little or no comment on the subject.
Institutions are aware of facts and conditions that are not available to the general retail investing and trading community. However even though the overall perspective was that the British would vote to not exit, the institutions had prepared for the event. They already knew the details of what would happen next either way, and did not overreact. The one minute collapse of the Dow 500 points was all High Frequency Trader HFT driven.
The reason the institutions did not overreact is because this is NOT an instantaneous withdrawal by England from the European Union. It may take several years if ever, to actually be a total physical and economic withdrawal. There are innumerable negotiations, regulations, and political consequences that must be determined first.
HFTs are designed to trigger thousands of orders on the millisecond timeframe whenever there is a Black Swan Event. HFTs drove the Dow Industrial Average down in one minute. This made it nearly impossible for the individual Retail Trader to sell short the run down, due to the speed at which the indexes fell.
However, vertical Angles of Descent™ are usually followed by vertical Angles of Ascent™ and these create opportunities for Swing Traders, to enter fast moving runs. Knowing when the turn is likely to occur is all about knowing where the Dark Pool Buy Zones™ are for each stock. Giant Buy Side Institutions using Dark Pools were quietly accumulating in early June. This is unusual, but happens when stock values are at bargain prices.
How far a stock will fall depends upon the following 3 factors for a Black Swan Event:
- How much of the corporate revenues of a stock will be impacted by the Brexit vote, which is a case by case basis.
- Where in the overall business cycle or industry cycle the stock is at the time.
- Where the closest Buy Zone is located, which is where the Dark Pool Time Weighted Average Price TWAP orders are already waiting for a price trigger.
Below is a chart example of Dark Pool Buy Zones for the company Sba Communications Corp. (SBAC: Nasdaq).
The lows of the rectangle are the lows of the Buy Zone. When a huge sell-off occurs due to news panicking the independent Investor, stocks can be sold off quickly. However if a Buy Zone is nearby, then that area is likely to catch the stock if the Dark Pools TWAP orders trigger.
The next level of Buy Zone is the bottom neckline high range, which in this particular stock is also technical in line with the low of the current Buy Zone.
Trade Wisely,
Martha Stokes CMT
TechniTrader technical analysis using TC2000 charts, courtesy of Worden Bros. Inc.
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.
