Institutions, HFT Machines, and Dark Pools Dominate But We Are the Resistance
Category: Lessons
Lessons and tutorials on technical analysis, stock trading, swing trading, day trading, and investing. Included are various tools that are working in the current trading environment. These lessons are the result of years worth of my own successful and painful trading experiences. This is one of the best free trading repositories on the internet. There is a lot of information contained in the more than 55 lessons below. Most find it easier to digest these tutorials by receiving one per day by email. You can subscribe here to get each lesson below at the rate of one per day. Enjoy!
I created a stock screener you can use to find pocket pivots and positive divergences between large players volume and stock price.
The goal of this stock screener is to get ahead of big moves in stocks by finding ones that are chopping out or trading sideways while the large players volume and Twiggs Money Flow are rising at the same time.
I created this stock screener for you guys. To access this stock screener, sign up to Chartmill here, then go to Shared Screens and scroll down until you find “GST Positive Divergence”:
In this video lesson, I talk more about the “GST Positive Divergence” stock screener and then I show you the charts it outputs and what we are really looking for.
Taking money from other people is a hard skill, particularly when everyone is trying to take money from you…
Is your comfort zone holding you back as a trader?
As James Altucher told me, it doesn’t matter what age you are: 20, 40, 60 or 80: you improve and enjoy life when you dive into the deep end of the pool, swim for your life, and survive. YOU LIVE!
My best trade this year was when I bought GBTC (Bitcoin Investment Trust) and made about $2,000 in one week. The trade terrified me. GBTC isn’t even listed on Finviz. In fact, it’s an over-the-counter listed stock.
Everybody around me thought I was crazy. I got people warning me that I could lose everything.
These traders that were freaking out on my OTC trade meant well. But they were speaking from their own comfort zone.
If you are unwilling to go out of your comfort zone, then your returns will be mediocre at best.
The longer we trade, the more we form the habit of trading within a comfort zone. But life teaches us that the greatest gains in life come from going outside your comfort zone.
If you’re married, you know this. Remember when you got up the courage to communicate with a woman you didn’t know? It took guts to ask her out on that first date. It took more courage to go for that first kiss. But had you stayed in your comfort zone, you’d still be single and alone and you probably wouldn’t have a daughter or son either.
If you have a job in a corporate environment, you know this. Maybe a task came up that you were nervous about doing but you went for it anyways. You kept doing tasks you weren’t comfortable with but gradually you got better at all of it. Then you got a new title and a raise. Had you not been willing to step outside your comfort zone, you’d still be doing the same tasks you’ve always done and you probably wouldn’t have gotten those raises over the years either.
Just last week I had another huge win in silver. I told you guys I wasn’t trading commodities anymore because I wasn’t good at it. I imprisoned myself in a comfort zone of my own making. Last week it felt like reckless abandonment when I went long on a swing trade in silver. I was so nervous. I couldn’t sleep very well at night. People say if you can’t sleep well at night you shouldn’t be in the trade. I think that’s nonsense. If you can’t sleep well at night it means you’re pushing out of your comfort zone which is exactly what you should be doing as a trader.
I made big money in an options trade in Illumina years ago. I then lost everything trading naked options with Scottrade. I switched from Scottrade to Etrade and Etrade wouldn’t let me do naked options. I spoke with Etrade over the phone. I even lied to them about my experience with options. They still wouldn’t give me a naked options account. I said screw options. I don’t like options because brokerage firms like Etrade are little girlie dramas about it. But at least I tried. Now I’m not interested in options. Failing at something is ok. At least you tried. There’s no shame in trying, and you have education to gain. Please don’t send me website links about different options brokers. I’m not interested in trading options anymore. What interested me yesterday, may not interest me today, but maybe it will tomorrow, or not.
The point is, you should be doing SOMETHING outside your comfort zone for the lessons in life invariably are the same lessons in trading.
If you always stay in your comfort zone, you’ll be lucky to keep up with the S&P 500 average. A 401K is for people who want to invest in a comfort zone. Gone are the days of sticking your money in a 401K and then looking at it 40 years later to discover you’re a millionaire. Maybe that was possible between 1960 and 2000 when the market and economy grew so rapidly. It’s not possible today.
Nothing great in your life ever came from just staying in your comfort zone. Your trading is no different.
The discomfort zone is NOT about blowing up your trading account in a risky penny stock. It’s about finding happiness and successful trading outside your comfort zone.
So I traded silver for the first time since 2012.
I was terrified. And I thought after I took the position that I was going to lose everything. I had a panic attack.
Why did I just buy silver? It’s down 10 cents from my entry in just a few minutes. I’m going to lose everything. Maybe I should just sell now and get out of the trade so I don’t feel so much discomfort.
Then a voice said don’t be a sissy b*tch Lance. You’re middle-aged and losing your hair and so maybe your male-hormone level is low or something because you’re being girly about this silver trade.
That’s right, I thought. I got angry and just turned off the darn computer and walked away from my trading desk. I didn’t look at the trade for another day because I was freaking myself out too much.
Here’s how the trade worked out:
I was reminded that if a stock bounces repeatedly off a support level, it’s ok to bet that it will bounce off that level again even if it’s linked to a commodity like silver that I’ve been afraid to trade for the last 5 years.
Was this trade fun? No. It was pure hell. But when you push through your fear, go outside your comfort zone, a new world of possibilities opens up for you to explore.
I’m happy for now until my next losing trade.
If you found this lesson helpful, please share the positive message with your trading buddies.
Stock trading ideas are the life-blood of profitable investing. It does not matter if you are a day trader, swing trader, or investor, coming up with ideas is where the money is at.
All the greatest investors were master thinkers who came up with a good idea and then ran with it.
Look at Others Stock Trading Ideas
An excellent web page for monitoring others ideas is at Trading View here.
You can see ideas coming in from other traders in real-time. You shouldn’t actually follow any of the ideas on this webpage. You don’t want to enter into the bad ideas of somebody else. The goal is to work the idea muscle in your brain by being inspired by other traders posting on Trading View.
Google Search For Stock Trading Ideas
Don’t overlook using Google search to find ideas. Type “stock trading ideas” and then do a NEWS search by clicking here (this link will take you to a Google news search for stock trading ideas, within the last week).
The ideas at the top of this Google search are going to be from professional and institutional traders. Again, I would caution against following these stock picks directly as these professionals have already positioned in these stocks and are now using the mainstream media to pump their positions. Instead, let this search result help get your own creative thoughts flowing.
Come Up With 5 Ideas a Day
Work the idea muscle in your brain. Write down 5 ideas every day. Most of them are going to be bad. That’s ok. The important point is that you are coming up with 5 ideas every day to work your brain muscle. After doing this for several months, you will get really good at this.
Here is a great tool for coming up with stock trading ideas:
Are you ready for a simple swing trading strategy that uses large player volume and pocket pivots?
The idea is to screen for pocket pivots and effective volume studies that show large players accumulating. You look for a positive divergence between large player volume and price and make sure the Twiggs Money Flow confirms the positive divergence on the large player volume. I would not enter a swing long position if the Twiggs Money Flow doesn’t confirm the signal.
What makes this simple swing trading strategy so awesome is that you can use one tool called Chartmill here to quickly screen thousands of stocks for large players and pocket pivot signals.
Simple Swing Trading Strategy
Log in to your Chartmill account and click on Charts at the top of your screen:
In the Add Indicators box, add the indicators: Simple Moving Average (50), Effective Volume: Large Players (), Pocket Pivots (Kacher/Morales)(10,2), Twiggs Money Flow (21), and Support+Resistance Lines():
Now save those chart settings by clicking on the little menu graphic button, and then the Save button in the top right corner of your screen:
Please note, there’s two menu graphic buttons on the right side of your screen. You want to click on the top most menu graphic.
Now that your swing trading chart indicators are saved, to screen for stocks using the simple swing trading strategy of large volume and pocket pivot signals, click on Shared Screens at the very top:
Now scroll down and select “large effective volume + pocket pivot today”:
Charts will populate on your screen. What you are looking for are stocks that have been consolidating with rising large players volume and a recent pocket pivot signal.
When you find a stock that looks interesting, copy the ticker symbol. Now go back to the Charts area and type in the ticker symbol and load the default chart settings you saved in the steps above.
You are looking for the Twiggs Money Flow to confirm the positive divergence between large player volume and price action.
This is a really simply swing trading strategy that is working nicely right now. Below is a video lesson I did of the steps above for those of you who find it easier to follow along by looking at my screen.
In this lesson you will learn who the “smart money” is, their trading habits, and how they move millions of shares without anyone noticing. These institutional trades are hidden inside of secret dark pools. You will also learn how amateur traders can profit from dark pool trading.
First, let’s start off with a good description of who the “smart money” is and why they use dark pools to trade.
How To Profit From Dark Pools
Traders pick up orders from the dark pool and execute them in the open market. Even though we can’t see the trades inside the dark pool, we can see the trades as they come off the dark pools to be executed in smaller blocks in the open market.
For example, on September 6, 2016, a huge 2.6 million shares trade was detected in Wells Fargo. It was “smart money” dumping massive long positions over dark pools. The actual trade was probably for 15 million shares or more, but the smaller block orders of 2 million and 2.6 million shares coming off the dark pool and into the public market was detected by the block trades screener in Etrade Pro.
On September 8, 2016, two days after large block orders were detected in Wells Fargo, the news broke that 5,300 bank employees had opened 2 million bank accounts, and charged fees on those accounts, without customers authorization. The “smart money” knew about the coming scandal and was quickly unloading Wells Fargo stock before the story was released to the public.
The way to profit from large block orders is to use the price level at which large block orders were detected as a pivot level. If the stock begins falling below that pivot level, the “smart money” is selling. If the stock rises above that pivot level, the “smart money” is buying. I like to look for patterns of several large block orders to confirm the buying or selling. This is why we also use a Level II quotes tool to look for a pattern of large block orders in a given security. Think of it as the block trades screener finds the large block orders in a given security, while the level II quotes lets you zoom in and focus your attention on that security as you look for more unusual block orders.
Setting Up Your Dark Pools Screener In Etrade Pro
In Etrade Pro, you can monitor level II and large block trades by setting up the block trades screener, level II quotes, and finally a chart tool.
Click on Tools, select Strategy Screener:
Select Block Trades from the Predefined Strategies list:
The screener captures orders of more than 20,000 shares, then filters the results based on the average daily volume and the relative volume. Click the Go button.
The block trades screener in Etrade Pro tracks the largest dark pool providers Liquidnet and POSIT among other undisclosed markets.
Now set up the level II quotes tool by clicking on Tools, select Market Depth:
Finally, to add a chart tool, select Tools and Chart.
You want to link the level II quotes tool and the chart tool to the block trades screener so that when you click on an alert in the block trades screener, it pulls the level II quotes and the chart for that security.
Left click Links in the top right corner of each of the three tools we added above and set them all to the same link:
Under link setup, the link you assigned to the three tools we added above should look like this:
Folks, finding a catalyst that can power a stock or an entire sector higher is the key to killer profits. Catalysts are more important than being able to read a chart or a financial statement.
You can be the best technical chartist in the world but still go broke in the stock market. You can have a Harvard MBA and know how to read financial statements like the back of your hand and still get b*tch slapped and lose all your money to other traders in the stock market. However, if you know how to spot a catalyst and position early, you can make a fortune in the market and know very little about how to read charts and financial statements.
Most people go from news story, to catalyst. They hear something in the news, then think what stocks could benefit from that news. That’s an impossible task because you can’t possibly think of all the stocks that could benefit from a breaking news story. Instead, go the opposite direction. Use a stock screener to look at stocks first, then go backwards and search for an event in the news. Look for several stocks within the same sector and industry to confirm the catalyst.
The stocks you really want to target for explosive gains are stocks with a market cap of under $300 million. These are called small cap stocks. You can also do this with OTCBB stocks.
Frequently Asked Questions about Finding Stock Trading Catalysts
How often do shorts have to cover?
There is no rule or law that governs when a short seller has to cover his position. Just like there is no rule or law that governs when someone must sell and close out a long position.
Sometimes traders confuse the short interest “days to cover” to mean the number of days a short sellers has before he must close the position. The days to cover metric just takes the average daily volume traded in a stock, and the number of shares short, and calculates how many days worth of trading the short interest is.
For example: if company ABC has 1000 shares outstanding, and 10% of the float is short, that means 100 shares are short. If the average daily volume is 20 shares a day, then the days to cover metric is 5.
Keep in mind that a short sale is a transaction in which shares of a company are borrowed by an investor and sold on the market. The investor is required to return these shares to the lender at some point in the future. The lender of the shares has the right to request that the shares be returned at any time, with minimal notice. In this event, the short seller is required to return the shares to the lender regardless of whether it causes the investor a gain or a loss on his or her trade. But this rarely ever happens as most lenders are large brokerage firms with plenty of stock available for investors to borrow (short).
How do you know when short sellers are going to cover?
Nobody knows exactly when short sellers are going to cover. However, ask yourself the opposite question: How do you know when longs are going to take profits? You look at price action and chart patterns. If a stock spikes upward too far, too fast, it’s a good bet the stock is going to pullback from profit taking. Right? It’s the same logic but reversed for short sellers. If a stock spikes downward too far, too fast, it’s a good bet the stock is going to bounce as short sellers cover their positions for profit.
Most chart patterns do ‘V’ bottom bounces. This suggests that short sellers don’t like being in short positions any longer than they have to. Interest is charged short sellers because they are borrowing stock from their broker, so time is generally not on a short sellers side. Furthermore, over the last 80+ years, the stock market is in an uptrend 70% of the time, and a downtrend 30% of the time. This statistic is why most traders make the majority of their money on the long side and not on the short side of the trade.
The other thing that is stacked against short sellers is that short positions must be reported for regulatory purposes. That information is made public by groups like the NASDAQ with about a 2 week time delay. What that means is that because short sellers must buy a stock back to cover their short positions, you can know what future buy side demand from short covering is likely to be. In a stock with 20% or more of the float short, with more than 10 days to cover, what happens is that the exit for short sellers can get crowded. In the event of an earnings surprise, new business, or even a buy-out offer, if all the shorts race to cover at the same time, a whopping 20% of the float is going to turn into buy orders quickly. This short covering causes a ‘V’ bottom bounce which swing traders work to exploit for profit.
A lot of traders lose in the penny stock market because they put on added risk just because they are trading penny stocks. Just because you are trading penny stocks, it doesn’t mean you should ignore the 3 principles of trading. These are time tested principles that will put the odds in your favor.
The three principles of trading penny stocks safely are:
1. Diversification
2. Limit exposure to any one stock
3. Scaling
Diversification: Diversify, especially with penny stocks. It is better to buy a bunch of penny stocks than to put all your money into just one penny stock. The reason is that penny stocks can explode hundreds of percentage points higher and so hitting just one hot penny stock will more than make up for the number of losing picks.
Limit exposure to any one stock: Do not keep buying more of a penny stock as it drops. If you do that, you will end up with a huge percentage of your entire trading account in just one penny stock and your exposure to that one penny stock will be too high. Many of the best penny stock traders limit their exposure in any one penny stock to no more than 3% of all the entire amount of money in their trading account.
Scaling: How many times have you bought into a stock only to have a lot of traders already in the stock immediately dump when they see your buy order? In thinly traded penny stocks this is a problem. Scaling allows you to test the psychology of current holders of that stock. If insiders immediately begin selling when your buy order is executed, you may not want to buy any more of that stock. A lot of traders use the 1/3 rule where they scale into a trade with three separate buy orders.
Probably the most confusing aspect of this stock screener when you are first learning how to trade penny stocks is the “tier” setting:
The OTCBB market has different tiers: OTCBB, the pink sheets, and the grey sheets.
The OTC Bulletin Board or OTCBB is a quotation medium for many over-the-counter (OTC) equity securities that are not listed on the NASDAQ or a national stock exchange. Exchanges (such as NASDAQ and the NYSE) have specific listing requirements and maintenance standards, which are stringently monitored and enforced by the SEC. Companies listed on a major exchange have reporting obligations and regulatory requirements they must meet. OTC quotation services (OTCBB, OTC Markets) facilitate quotation of unlisted securities thus there is no such requirement.
The pink sheets do not need to meet any minimum requirements or file with the SEC. The Pink Sheets is a quotation service and not an exchange. Pink sheets are very risky investments.
They grey sheets are the riskiest. Stocks generally end up on the grey sheets after an SEC suspension. It is the grey market. Market Makers are warned, pursuant to 15c 211 not to publish a quote for the security without reviewing its information statement/clarified information statement.
I recommend that you only target OTCBB stocks and if you’re REALLY ready to gamble, pink sheets. Stay away from the grey sheets until you advance to penny stock expert level.
What is the best time of day to trade stocks? The answer may surprise you.
The best time of day to trade stocks is not at market open for the average amateur trader. Professional traders will often fade stocks at market open. For example, if the market gaps up and rises, professional traders will short the market for the anticipated move down. If the market gaps down and falls, professional traders will go long the market for the anticipated move up.
Let us take a look at a trade I made today, and lost 5% on for not respecting the best time of the day to trade rule. The best you can do is limit your losses with a disciplined stop loss and then learn from your mistakes. A wise trader will learn from the mistakes of others so that he doesn’t make the same mistakes.
I was intrigued by the +143% revenue growth of RCON from my watch list. The chart on Finviz looked sweet and had a candle over candle at market open (ultimately by the close of the day, the big green candle turned into a red spinning top). Click on the chart below to enlarge:
RCON is in the oil and gas services sector and sells fracking equipment in China and I liked that. The catalyst is the annual shareholder meeting conference call scheduled for June 30, 2014 and the possibility that it will run up this week. Even the Finviz chart looked like a sweet pullback with a candle over candle reversal. I jumped in quickly because it started to run. However, the trade turned into a horrible one with me effectively buying high, then selling low as my -5% stop loss kicked in:
The biggest mistake I made was in getting greedy with the gap up open and the early price action. It’s usually not a good time to buy stocks at market open because professionals will fade the open. I know this. You know this. I saw the stock start to run away from me and I was afraid I’d miss out on the run up. My emotions got the better of me.
The next big mistake I made was in putting too much of an emphasis on the +143% revenue growth. RCON is already up +141% over the last 52 weeks. The P/E ratio was 49.7. In other words, the +143% revenue growth is meaningless. It’s already priced in to the stock.
The only thing I did right was stick to a disciplined -5% stop loss strategy; however, if a stop loss is the only thing you get right, you’re sure to take loss after loss and eventually go broke. As a trader, you have to get more things right than simply your stop loss.
The best time of day to trade stocks is during the middle of the day when markets are most calm and traders are waiting for further news to be announced. Most of the day’s (and overnight) news has already been factored into stock prices and so the main focus of traders is on where the market is headed for the remainder of the day. Because prices are relatively stable during this period, it’s a good time for amateur traders to place trades. Had I waited for the middle of the day before evaluating whether or not to take an entry in RCON, I would have had a completely different opinion on the stock. Instead of feeling rushed because the stock was rising fast (like I did at market open), I would have seen a stock that had sold off since market open and that was in a down trend. That fact alone would have prevented me from taking an entry in the stock because the candle over candle pattern forming on the daily candlestick would have been seriously in doubt in addition to the stock trending lower.
The best time of day to trade stocks is during the middle of the day when markets are most calm and traders are waiting for further news to be announced. Most of the day’s (and overnight) news has already been factored into stock prices and so the main focus of traders is on where the market is headed for the remainder of the day. Because prices are relatively stable during this period, it’s a good time for amateur traders to place trades. Had I waited for the middle of the day before evaluating whether or not to take an entry in RCON, I would have had a completely different opinion on the stock. Instead of feeling rushed because the stock was rising fast (like I did at market open), I would have seen a stock that had sold off since market open and that was in a down trend. That fact alone would have prevented me from taking an entry in the stock because the candle over candle pattern forming on the daily candlestick would have been seriously in doubt in addition to the stock trending lower.