UNDERSTANDING DARK POOL CHARTS

December 10, 2020 | Current Charts

Understanding dark pool charts twitter feed might not come so easily if you are a newcomer to trading, algos, and dark pools. Lets cover some key elements to how to interpret the charts that are posted on this blog, or elsewhere by myself or anyone who uses FLOWTRADE

First the basics.

Fig 1
Fig 1

Above in the top right (Fig 1) is the stock chart symbol. We can ONLY check 1 or 15 minute charts currently. Purple bars show us the price action of the stock. Is it bullish or bearish? Are we trending higher, lower, or ranging? These types of questions are things you should already know before you trade with any advanced tool that looks at high frequency trading algorithms. The basics are important. If you need to learn the basics, take these free trading courses.

The white blue line is the “normal” algo indicator. It also has another setting which tracks “dark” pool algorithms instead of “normal” algo indicators. More on that later.

Next you’ll notice a blue horizonal line on my charts, which highlights the stocks current price at the right side of the chart. Don’t confuse this line with a dark pool level which is also blue and has more information attached to it.

Now lets look at the blue lines with the date, time and price level at the left hand side of the chart. These are the dark pool transactions. I prefer to watch dark pool levels over block trades because these are the sneaky trades the market makers would like to hide from us, and typically larger sized trades, but not always. What do I mean by sneaky? Funds who place these orders in the dark pool exchanges do not want you to see what they are doing, while they are doing it. They are large players in the market, and they use dark pools instead of normal “lit” markets to trade in, so not to impact price as greatly.

They don’t want their order to impact the current price of the stock, because it would cause the stock to rise or drop if everyone could see what they were doing and when they are doing it. Instead, they report the trade to the rest of us (if we are lucky to have a tool that can see) and then we can react to what they have done.

Darkpoolcharts chart explanation
Fig 2

In the chart above (Fig 2) we see a rising wedge develop (reversal pattern) with a bearish normal algo indicator. This signals that the rising wedge should break, and not widen and continue (in bull markets rising wedges love to break, only to retest the wedge, widen, and continue up, frustrating traders). 

Because we have the dark pool levels, and the algo indicator, we can anticipate a short to one, or two, or even more of the lower dark pool levels as a target. Perhaps VWAP, or another technical level like a fibonacci level is also there. The more technical skills you have, the better, as I use many different methods and technical confirmations to confirm my trade, NOT JUST THE DARK POOL LEVEL. I also will take profit EARLY and CLOSE to the dark pool level often. Am I within a few cents, and already made .50 cents or a dollar? Sure I’ll close the trade here. The point is, the targets are zones and my entry determines my exit. The one minute charts are for scalping. If you’re trying to swing for the rafters you’re going to miss a lot of base hits. Don’t pass the low hanging fruit up.

Understanding Dark Pool Charts ….Charts

In the video above we review the algo activity and are viewing a replay from 12-8-2020 into the closing bell of 12-9-2020. Pause the video if you need to read the annotations. The algo opened very strong in the morning (you may of seen my tweets about it on this day) and this confirmed some good trade setups in the morning (after the morning sell chop/panic)

Things to consider

  1. The normal or dark pool algos (remember there are two settings) can stay divergent or confluent and NOT have price follow after it for a long time, and if you’re short EARLY before a good technical signal to enter has emerged, you’re going to feel frustrated. You’ll need to test the platform for yourself to see what I mean (Don’t trade right away with it, I didn’t trade for a week while I watched it. Instead I saved charts, reviewed the behavior of the aglos and block trades/dark pools and so on.
  2. The algo indicator isn’t bound to the price scale. This means it can move up or down and it doesn’t correlate with the price axis scale on the right. It isn’t a breadth indicator or a indicator with a fixed value that you can understand. It’s proprietary and specifically tracks HFT activity, and there isn’t another like it accessible to retail traders. You need to learn how to read it and trade it properly within the platform. When the indicator moves up above price and creates a pattern or action that is bullish, you can discern that it may be a more powerful signal than when it only moves up just below price making the same bullish pattern.
  3. The algo makes patterns, just like candlesticks. Cup and handle, higher highs, wedges, inverse head and shoulders and bull or bear flags are my favorite and easily spotted. Look for these patterns and others to form. Price discovery, and algo discovery.
  4. Dark pool trades or block trades that hit LIVE while you are trading, and with the algo indicator pointing up or down create a strong probability that the trade is BULLISH or BEARISH depending on the direction of the algo at the time of the transaction and how intense (is it way up or way down on the chart). The same is true for the DPI (dark pool algo indicator)
  5. Each stock is different. Do you like trading a lot of the same stocks? Good. Chart the heck out of it with FlowTrade for 2-3 months, and become an absolute master of it. Understand how it behaves algorithmically. Learn how it behaves when dark pool trades hit in the morning, or the end of the day, or how it reacts when it hits a dark pool trade level from a month ago. Learn about delayed signature prints and what they mean.
  6. This tool is best if you are an active day trader or swing trader. I’m not sure if its really useful to investors but I don’t see why not, you’d just have to watch the stock a few times a week to see if algos are buying or selling and know where those huge trades are being placed. For example I chart spy all week and stay in tune with the market this way.
  7. For me, no divergence, or confluence, no trade. I don’t like tight ranging trades, unless they have HUGE divergence that is bearish or bullish. I won’t long a stock with bearish divergence and I don’t like shorting when it’s showing a bullish divergence. The tool will keep me from taking trades sometimes that I would of otherwise taken without it. Look at this tweet for example. I closed my $SPY longs and held a small put position because of this signal! I do miss some opportunities because of it, but I would rather NOT fight the algos if they are buying or selling.I have learned to trust them (hundreds of hours at this point charting on FlowTrade).
  8. Some stocks have low liquidity, or no dark pools transactions at all. So use the block trade feature, in fact, be sure to check the block trade feature a lot because block trades are big institutional trades and can give you great reads on the direction when they happen (or happened in the past) lots of penny stocks or mid caps will only have blocks. Here’s a trade below I took on $TWTR that broke over the block trade level. I sold later at the dark pool level in the afternoon.
$TWTR day trade setup

Macy’s (Fig 3 below) has a lot of block trades, but few dark pool trades. You can toggle on one, the other, or both if you wish. 

$M Macy's Dark pool and Block Trade Chart
Fig 4

I’m going to stop here for now, My hands are killing me. I’ll probably go back and edit this post until its a master post with more examples and features, because I am missing some things here. I will say you guys should try the platform yourself. Learn directly from the team at FlowTrade as they are MASTERS at using it THEIR WAY and you’ll get a solid foundation in the tool, Once you take their training that comes with the platform, this will all make a lot more sense. Start a FREE TRIAL of FlowTrade. 

Oh and if you want to join the discord/live streams I do, head over here: https://bullishbears.com/darkpool-discord/

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