High Frequency Trading Firms and Dark Pools

Traders Learn Price and Volume Analysis

The Financial Markets have been undergoing massive internal structural changes that are impacting price and volume action, that Retail Traders depend upon due to their use of charts and technical indicators for stock pick selection and trading.

Candlestick charts have become the standard for most Retail Traders, and there are numerous brand new candlestick formations. When candlesticks were introduced to the western markets in the early 1990s by Steve Nison the translation from Japanese commodities markets trading was exact and precise, including the unique and artistic visual names assigned by the Japanese to different formations.

The automated market of today with High Frequency Trading Firms and Dark Pools, has caused new candlestick pattern formations.

The new patterns developing are due to several factors which include the following:

1. The increased use of High Frequency Trading venues on exchanges. These affect intraday and day traders mostly, as High Frequency Trading action on the millisecond causes more gaps and sudden price reversals and whipsaws now than were present a few years ago.

2. Dark Pools are off the exchange aka Over-the-Counter transactions that are delayed orders not displayed on the exchange platforms. These are used by the giant Institutions.

3. If Dark Pool liquidity is insufficient to fill their orders, then their activity can suddenly alter the exchange transactions when their orders move to the exchanges for liquidity. This can cause a ripple effect in price action most Retail Traders do not anticipate, which can cause whipsaw activity. This is due to High Frequency Trading orders triggering as a Dark Pool is identified by the computer generating the High Frequency Trading order flow.

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Trade Wisely,

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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