How to Identify Momentum Action Ahead of Runs
One of the most exasperating experiences for many StockCharts.com Users is to open their charts to find a stock that has run or gapped with momentum energy. These huge one day gains occur when High Frequency Traders HFTs fill the queues ahead of market open. This forces the computer automated market makers to gap or run the stock up at market open.
In chart example #1 above which is an Intraday View, the stock gapped at market open due to a huge flow of orders from High Frequency Traders. This causes the stock and volume, as well as other Volume Indicators to go to vertical Angles of Ascent™. However before this huge at open gap and run, price did not show what direction the stock would move next. It only showed that the stock was in a consolidation mode, after a shallow retracement within a longer consolidation.
The Volume and Quantity Indicators revealed the underlying upside energy. The same chart example as chart #1 is shown below as chart example #2, however it is a Daily View of the same chart. Quantity Indicators were showing upside breakout potential before the stock gapped. Recognizing that energy is building to the upside allows Swing Traders to plan and prepare earlier rather than trying to chase the stock once it has gapped.
It is difficult to chase High Frequency Traders runs and gaps with Day Trading as the stock gaps within seconds of the market open, then profit taking occurs immediately. The whipsaw action within the first few minutes of the day, often results in Retail Traders losing money on these types of gaps. The problem is not High Frequency Traders running the stock. The problem is the entry for the trade.
Martha Stokes CMT
TechniTrader technical analysis using StockCharts charts, courtesy of StockCharts.com
Chartered Market Technician
Instructor & Developer of TechniTrader Stock & Option Courses
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