Dark Pool Trading Exposes Hidden Market Liquidity


Simpler Trading Team

Sep 20th 2022  .  5 min read

Behind the daily face of stock market volatility lies a shielded range of price action.

Retail traders can follow the signals emanating from this “darker” region and infuse them into a targeted trading plan.

Or, ignore the dark elements to their potential downfall.

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Retail traders can follow dark pool trading

Dark pool trading isn’t a common term among retail traders gathering around the proverbial office water cooler.

But should it be?

At Simpler Trading, there have been explanations for dark pool trading and its impact on retail traders, and the stock market in general.

Kody Ashmore, Director of Weekly Options Strategies at Simpler Trading, pointed out how this inconspicuous facet of trading has been showing sell signals on the SPDR S&P 500 ETF Trust (SPY). SPY represents 500 large-cap U.S. stocks.

Dark pool trading is populated by institutional investors such as big banks, mutual funds, insurance companies, pension funds, or hedge funds. These “big players” are known to tap into dark pools in the trading world where they are able to trade with liquidity and discounted commissions.

Trade transactions are hidden until completion in this non-public financial exchange arena. These alternative trading systems allow placing orders outside public view and without requiring users to display the size and price of orders to others in the dark pool.

Before the heavy selling Tuesday, Kody demonstrated how the dark pool levels he tracks pointed to price movement going lower.

With the markets more volatile in recent sessions, Kody is watching SPY trend lines that could give traders a leg up on price action as the dark pool exercises its trades. He is closely watching SPY levels that will follow the Federal Reserve rate hike decision on Wednesday and how this all plays out into the end of the week.

Even the dark pool has been sketchy in signaling price movement, so Kody remains flexible on any trade execution as the stock market volatility churns along. The key is determining a signal that indicates a solid fail in price levels in the SPY.

“I am not going to be putting my bullish hat on again anytime soon,” Kody said. “I am set on the bear’s side. I’m looking for price to break down.”

He is anticipating more choppy price action where the SPY has short rallies into resistance levels followed by more downward movement.

“I am seeing dark pool selling coming in and a flush lower,” Kody said.

Avoid trading alone against dark pools

Trading using technical analysis requires diligent research, learning strategies, and applying stock chart indicators.

At Simpler Trading we understand the time commitment required to learn trading at a higher level. This rings more true with the knowledge that “big players” are working the stock market at a different level.

We started the Simpler Options years ago to help traders find out more about who we are in the world of trading.

Try this online training and trading chat room today and get access to pro-level traders with decades of real-time market experience.

Volatile market has variety of trading options

Simpler’s traders are following a variety of options plays despite market volatility.

Team members for some time have focused on range bound options trades using multi-leg options setups such as the iron condor, butterfly, or unbalanced butterfly. These can be puts or calls – selling or buying.

Kody applied an iron condor to United Airlines Holdings, Inc. (UAL) this week based on sideways moving averages that meet his support and resistance requirements for the underlying asset price.

The market isn’t regularly offering the “cleanest” setups showing key levels and movement, according to Kody, but trades like UAL can offer a wider window of potential profitability.

Additional areas traders are watching include coffee, energy, metals, and other agricultural products. Coffee showed promise of moving higher and even closed up 2% at $225.70 during the sell-off today.

In the market today, the Dow closed at 30,706.23 points to fall 1.01% (dropping 313.45 points on the day). The Nasdaq dropped to 11,425.05 points for a .95% loss while the S&P 500 fell 1.13% to 3,855.93 points.

Considering how the technology-laden Nasdaq index has been hit lately, traders are still watching Apple, Inc. (AAPL).

Apple is a mega-cap technology stock indexed in the Dow, Nasdaq, and S&P 500 yet, like other technology stocks, it is susceptible to high inflation which is holding at a 40-year high. 

Simpler’s traders have followed Apple for some time as a possible indicator of market trouble. Apple held its own through the selling today and closed at $156.90 (up 1.57%). Apple grew from a pandemic low of $57.21 in March 2020, but is down from $182.01 since Jan. 1.

Time to start multi-leg options trading?

In a volatile market, traders don’t want to be tied to a trade longer than necessary or risk too much capital.

Multi-leg options trading – iron condor, butterfly, unbalanced butterfly – provides setups to enter and exit trades while playing all the advantages of options surrounding time and volatility.

Simpler Options, an online community of traders, offers connections for traders who are seeking market insight while trading options. Live-trade during market sessions, get trade alerts, develop personalized watchlists, and follow real-time setups in options, stocks, and other assets with this program.

With Simpler’s team, traders can get more training and trading during market hours.