How to Find Great Swing Style Trades for High Profits
“Dark Pools” is a term used to describe the largest Buy Side Institutions who control vast quantities of long-term investment money. Their Alternative Trading System venues are off the exchanges. They are hidden from the Retail Trader, who trades via a broker or Electronic Communication Network, and their activity is often delayed until after the market closes. This is a huge part of the market with over 40 Alternative Trading Systems available to the Dark Pools.
Tracking Dark Pool activity via your charting software is something every Retail Trader or Technical Trader needs to learn. It requires a shift of mindset however, away from the theory that “Price is the most important Indicator” to “Volume tracks the Dark Pools.”
The Dark Pools have a wide variety of order types called Time Weighted Average Price orders. The goal of these complex orders is to not disturb the price trend underway but also to control the execution price precisely so that their “range of price” sets the ping that triggers the automated Time Weighted Average Price orders for them.
Whenever there is repetitive order activity, your stock charts will reveal this activity even if price stays relatively flat, in a consolidation or platform pattern. What is required are indicators that can reveal the Time Weighted Average Price orders over time, and that means using volume based indicators.
Momentum trade runs generally occur AFTER the Dark Pools have accumulated all of the stock they want for their inventory at the time, which usually takes a few weeks to several months.
Professional Traders are able to pick up the liquidity draw using more exotic algorithms and professional technical indicators. The Professional Trader tends to follow the Dark Pool Quiet Accumulation patterns and their buying initiates the swing trading momentum runs.
High Frequency Traders later will pick up the Professional Trader’s activity and then the stock will either run hugely for one day or gap up. Either way it creates a high-profit trade for Retail Traders and Technical Traders.
Finding the Dark Pool footprint is the first step to higher profits on your swing momentum trades.
The chart example below definitely had the Dark Pool footprint. It formed a Flat Top on the daily short-term trend after a momentum run out of a prior High Frequency Trader run down. This top slid price down rather than gapping it down. The Rounding Short-Term Candlestick Bottom Formation is indicative of an accumulation mode by Dark Pools trading off the exchanges.
Martha Stokes CMT
TechniTrader technical analysis using a StockCharts chart, courtesy of StockCharts.com
Chartered Market Technician
Instructor & Developer of TechniTrader Stock & Option Courses
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