How To Get into Stock Early Before Huge Gaps

Buy Side Institutions are rapidly becoming the dominant force in the Stock Market. The Sell Side Institutions which are banks and financial services companies, continue to lose market share on the professional side. The opportunity for the largest holders of stock in the world which are the Buy Side Institutions is changing stock chart price action, trends, and candlestick patterns.

For Retail Traders this is actually an advantage, IF the Retail Trader can learn to recognize the “footprint” of the Buy Side Institutions which are also called “Dark Pools.”

The term “Dark Pool” comes from the Alternative Trading Venues, where these giant lot investors transact the business of buying or selling large quantities of shares of stock on behalf of their Mutual Fund or Pension Fund Holders who are the retail investing crowd.

Dark Pools are called such because the liquidity is hidden, and is not revealed on the lit market that is the exchanges of the stock market. There has been ample debate, argument, and controversy regarding Dark Pools, however like High Frequency Traders HFTs the Dark Pools are here to stay and are an essential and integral part of the modern complex and multi-venue Stock Market.

Dark Pools use special order types that allow the giant lot order to hold or contain price within a set price range. These are called Time Weighted Average Price TWAP orders. There are many variables and often many “legs” to these order types. The Dark Pools create what is called a “Buy Zone” where their giant lot orders trigger within a range, and this is the Buy Side Institutional footprint on stock charts.

The benefit to Technical and Retail Trader is that these order types create a very specific pattern of price on stock charts which can be easily identified and used to make extra profits.

The Dark Pools are hidden but the HFTs are constantly trying to find these orders to attempt to move price before the giant lot order can fill. Dark Pools know this and tend to “leak” out their intent AFTER they have purchased all the stock they want. This causes HFT algorithms to trigger and cause a huge gap.

By learning to identify Dark Pool Buy Zones™ early, Technical and Retail Traders can enter before the HFTs gap or run the stock thereby netting much higher gains on their short term trades.

Dark Pools tend to be bargain hunters and are found often in Basing Bottoms, extreme Bottoms, and Platform trends. Identifying the Dark Pool Buy Zone created by the Buy Side Institutional footprint on stock charts takes some practice but is worth the effort.

Below is a chart example of Electronic Arts Inc. (EA: NASDAQ).

100116_Trader_Planet_-_Buy_Side_Institut

The Dark Pool Buy Zone is marked with a rectangle. The HFT gap is huge and can net a Swing or Day Trader excellent profits, but only if they can enter before the HFT gap. The goal is to be able to recognize the Buy Zone and place the order ahead of the HFT gap up at open. The HFT gap always occurs before market open.

Trade Wisely,

Martha Stokes CMT
www.TechniTrader.com
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.