Relational Technical Analysis™ or “Relational Analysis” is my contribution to the continuing evolution of technical analysis. It helps me understand who is in control of the price action of stocks, indexes, ETFs and more. It can provide a leading analysis for trading or investing in any chartable trading instrument, even cryptocurrencies.
Relational Technical Analysis starts with an understanding of the current market participant cycle. There are 2 sides of the market participant cycle, each with a few different groups: the Professional Side and the Retail Side.
The Professional-Side Groups:
the Buy-Side Institutions, which I often refer to as “the Dark Pools”
the Sell-Side Institutions, which include the Money Central Banks and largest Financial Services Companies
the Professional Traders, both independent and Floor traders for either the Buy Side or Sell Side
the High Frequency Trading Firms, aka HFTs
The Retail-Side groups:
Smaller Funds with less than $3 billion under management
the Retail Groups: small lots and odd lots
At any given time, one or two of these groups will dominate the price, trend and direction of an asset. Relational Technical Analysis reveals which of the market participant groups is in control. This is due to the differences between the way each group trades--how they execute trades, their reasons for buying and selling, their access to information, where in the trend they tend to buy and sell, and more.
For example, there are huge differences between the order types and speed of execution of each market participant group:
Order Types: The Professional side uses unique orders to their trading venues such as Time Weighted Average Price (TWAP) strategies for automated orders and multi-leg cross-market orders. Retail uses Market and Limit orders; Small Funds often use Volume Weighted Average Price (VWAP) strategies to trigger automated orders.
Speed of Execution: The Professional-Side short-term traders trade on the second. HFTs trade on the millisecond. Retail orders must be filled within 1 minute. Dark Pool transactions can take up to 10 minutes or longer to fill huge, large-lot orders, based on the SEC Midas data analysis.
Additional variables include Lot Size, Time of Day trades are transacted and Venue (whether on the public exchanges or on Alternative Transaction Systems like Dark Pools).
These variables create very different patterns in candlesticks and indicators. Analyzing charts relationally, then, gives the trader an understanding of how price is most likely to behave in the near term. When the Professional Side is in control, the trend is typically more sustainable.
Relational Technical Analysis uses a combination of the price and volume patterns created by each market participant group along with hybrid indicators that reveal the balance of power. The example below uses Chaikin Oscillator. A Volume Oscillator is always included in the set of 5 indicators I teach, a set which differs depending on which indicators you have available.
On the SPX, we can see the shift of sentiment that occurred between October and January as the Dark Pools sold against the Small Funds.
In October and November of 2021, there was extreme speculation from the Small Funds. The steep run up occurred on low volume and an extreme angle of ascent in Chaikin Oscillator.
This was followed by a pattern that represents Dark Pool rotation. A trading range develops with stronger selling volume while Chaikin Oscillator moves down and stays at and below the center line over the topping pattern development. This rotation zone is confirmed in the months following, as Dark Pool TWAPs continue. The largest institutions were lowering their inventory of S&P500 components ahead of the downtrend.
This Relational Technical Analysis showed a Shift of Sentiment in the market that was a crucial leading indication of the risk of a significant downside trend developing. Traders using this analysis had ample time to prepare for the downtrend which resulted in a Bear Market decline this year.
Thinking ahead from here, I'm looking for the opposite as a bottom starts developing: a shift of sentiment back to the upside where Retail and Small Funds capitulate, followed by Dark Pool accumulation patterns.
In summary, Relational Technical Analysis is a new way of looking at the charts which focuses on the unique candlestick patterns, trend formations and indicator patterns that each market participant group creates. This can provide a leading analysis for all trading styles.
This has been an introduction to Relational Technical Analysis, which I teach at TechniTrader and which I presented to the CMT Association in 2015.
Shared content and posted charts are intended to be used for informational and educational purposes only. The CMT Association does not offer, and this information shall not be understood or construed as, financial advice or investment recommendations. The information provided is not a substitute for advice from an investment professional. The CMT Association does not accept liability for any financial loss or damage our audience may incur.
Ok this is interesting. So where is the predictive / interpretive element of this analysis ? You say "I am looking" .... but that is not "relationally" supported ... that is personal bias / preference ... how is this borne out with your theory ... ???
@Oh_If_Only GREAT REPLY!! Thank you for that... I wanna know who has access to EXASCALE Mecca stacked sequencing that can literally siphon money from every investor trader in all of Fintech, Crypto will be the Easiest . These things must be addressed. I know a lot I won't dare tell anyone because there would be a revolution.. But it has to do with Alchemy & it's been mastered 8 years Ago!!!! This is a great idea seemed to be copy & pasted with a play on words, but it's the iceberg surface in Smog..
bobbyd1
⋅
Ok I was wrong it is on search engines. look up Exascale Computing. You may think this doesn't exist but please before you spit fire back at me, make sure your right about that! Too many people Got WRECKED DESTROYED MANGLED BY THIS INTENTIONAL SHORT STOMP IN THE MARKET!!!!! OK NO ALGO's BOTS OR ANY T&A WAS ABLE TO PREDICT THIS. GUESS AT BEST!!! K- clustering works but still made people look silly & wrong. So what triggered this Tsunami and don't say fear and greed because when people invest in bonds you're basically getting a small fee for allowing Firms to Trade with your money. This is what they don't tell people.. This is where the middle class workers are the cause of their own demise & people who are in the lower or upper bracket..
CBMMR
⋅
@Oh_If_Only, This post is absurd. It literally allows for nothing more than interpretation. This explains the delusion of a "bottom" as the world continues to viciously spiral downward. Why does everyone on here think the stock market is a composite of charts?
Vibranium_Capital
⋅
@Oh_If_Only, so many questions? are you ok???? hello???
SekhobeLetsie
⋅
Where is price likely to be headed if this is the case?
mjcpaull
⋅
I cannot see any new information in this.... what you have outlined is already well documented & understood ...... unless there is more to come....
BlueBull_
⋅
An experienced trader can already spot these market "personalities" and trade accordingly just by watching the price action of daily candles.
The only way to learn swing trading is by watching the charts and training your brain to recognise patterns. If you use indicators, your brain will never learn and you'll be tricked by confirmation bias.
To be profitable, zero indicators on the chart at all times. Also, make all your candlesticks the same colour.