The huge advantages retail investors and traders have today that were unavailable a decade ago, are the new indicators that help track the Dark Pools and giant institutions who control over 80% of the market activity. Their investments in large caps ranges from 40-80%, and their investments in small caps can be as high as 99%.
For example when a stock has a high institutional ownership, that means the mutual funds, pension funds, and sell side institutions own the majority of the outstanding shares of this stock. Their investing can be long term or it can be short term. Sell Side Institutions often buy stocks to hold in trusts for derivative instruments they create and issue such as ETFs.
The advantage that retail investors and traders have nowadays, when they use modern indicators rather than outdated ones such as MACD, Stochastic, and other old-style price indicators is the ability to see the technical patterns called negative divergences. A negative divergence occurs when a leading indicator moves in opposition to the price trend. This is vital information investors and traders need, because the most critical areas are tops and bottoms which can be difficult to see, and consequently is where they lose money.
Price indicators do not lead price because anytime you use a moving average based indicator, the price MUST move before the indicator can react and create the line direction. That means all indicators that are based on moving averages of price lag. Even an exponential moving average which places more importance on the current price over the older price, in the time set group of prices that are used in the moving average aka 10 days, 20 days still lags price. This has been a problem for decades that great indicator writers tried to eliminate.
What has happened in recent years is a massive shift of how stocks are traded by the giant institutions. With this shift of market structure, the importance of volume indicators has escalated. Without the proper volume indicators, retail investors and traders are prone to chronic losses. This is due to the lagging qualities of price indicators.
With volume indicators exposing large lot volume activity in relation to what price is doing, negative divergences are exposed early on before the stock collapses. This means that retail investors and traders can now see that the stock is at huge risk of a top or a correction, thus avoiding buying into a top.
