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Originally Posted by TraderABC
Hi TapeReader,
could you please:
a) explain how "deep pocket" (and who exactly are they?) make the price?
b) How do you know in which position do they sit?
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Large professional traders, specialist, and others. You know if they are bearish or bullish by reading and interpreting bar chart in the time period under consideration. They leave their trail in the size of the spread, the open and close, and the volume the bar was made on. There are several rules one must learn and develop the skill to interpret a bar in it's context along with it's range..close..etc. I will give you an example:
VLO
Go the bigcharts and look at VLO. VLO but in October. What is the context? ans: trend starting to head down with distribution in the background. Some supply was dumped on the market in VLO on 10/4 indicated by a down bar with a low close. We see the decline on 10/5 on high volume, wide spread and a a weak close on 10/5. Wide spread = ease of movement of price. Heavy volume shows"smart money's" participation. Distribution in the background shows this a markdown phase begining. The low close indicates deep pockets have no desire to stop the slide down yet. Taken together all this indicates "smart money" selling and no desire to support it. Then on 10/6 more decline and then bottom on 10/6 with demand coming back in BEFORE the close which is indicated by the higher close on 10/6 all on VERY high volume. Smart money started supporting it indicated by the very high volume, large spread bar that closed high. If they didn't intend to support it most likely it would have closed on the low. The high close showed demand (because high vol) coming in. So 10/7 was an up bar as anticipated.
This is one example out of many. This type of tape reading is NOT looking for head and shoulders, triangles...flags..or any other patterns, It is simply interpreting the bar within the context in which it is found, taking note of the range, open, close, and correlating all that with the volume to determine the next PROBABLE move. Specific rules are followed. There is a rule for the above example. However, when a bar patterns fails to do what the rule indicates(and at times they do) then there are more rules to help you interpret the failure and what that means.