Candlestick Charts Reveal High Frequency Traders & Dark Pools
Most Individual Investors and Retail Traders do not need to worry about High Frequency Trading front-running. If investments for your long-term portfolio are with a large to giant Mutual or Pension Fund, these funds are using Dark Pools which are off-the-exchange transactions. The High Frequency Traders cannot see the orders to front-run them.
If you are a Retail Trader remember that most of the orders placed with online brokers for Retail Traders are filled from that broker’s inventory. So those orders never make it to the exchanges. If you are using Electronic Communication Networks, most of those orders are not sent to the exchanges either.
Otherwise here are 5 Tips to Avoid High Frequency Trading Front-Running:
1. Study the TC2000.com Candlestick Chart example. The chart below shows High Frequency Trading activity.
2. Huge High Frequency Trading activity is usually a one day event in a stock based on news, arbitrage from another market or instrument, or hedging.
3. It is also caused by Cluster Orders from Retail Traders all using the same trading systems, strategies, MACD or Stochastic indicators, and some technical setups.
4. One of the huge advantages a Retail Trader has using Technical Analysis and Candlestick Charts is the ability to see the activity of the High Frequency Traders, Dark Pools, Smaller Funds, Corporate Buybacks, and many more patterns that reveal who is controlling price and thus how price will behave thereafter.
5. One final tip is that High Frequency Traders rarely shift the trend, so do not start Selling Short right after a huge High Frequency Trading down day.
The chart example below shows two High Frequency Trading high Volume spikes with long candlesticks. They attempted to drive price up as indicated by the green arrow, but the price quickly shifts sideways and then turns down again. The stock did not alter its trend. The second attempt tried to drive price down, which is the biggest black candlestick before the run up. However the bottom for the Dark Pool Buy Zone™ had already been reached. The stock then commenced a sideways action of an early bottoming pattern.
Martha Stokes CMT
TechniTrader technical analysis using a TC2000 chart, courtesy of Worden Bros.
Chartered Market Technician
Instructor & Developer of TechniTrader Stock & Option Courses
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