Ep 139: Meta Patterns | Natural Stock Chart Patterns

June 15th, 2017

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I want to share with you the concept of the meta-pattern. The meta-pattern is not something that I've seen discussed too often when it comes to stock trading.

The term may not even be called a meta-pattern. You can call it also the default pattern or the standard pattern.

Metta Patterns - Introduction

We are talking about the consistency of the behavior of a specific pattern.

You can start evaluating how meta-pattern applies to:

  • the trading day
  • seasonality
  • federal interest rates
  • earnings

Then you start to get more insight into where the abnormalities are. And you can see where you can capitalize and take advantage of those moves.

You can see where the movement should be going in the other direction. That's when it may reverse and make some changes.

The whole point behind knowing and understanding the meta-pattern is to spot what is going to happen. You also have to spot what are the differences that you can play out and take advantage of than the usual tendencies or typical behaviors.

Pizza Restaurant As an Example

If we look at a pizza restaurant and you're looking to buy some pizza. You typically have specific time slots where they're busier. You can look at this range from 10:00 a.m. to 10:00 p.m. You're looking at this time frame.

Usually, they're not very busy at 10:00 a.m. The amount of foot traffic is not very busy. But you can get a spike at, and after lunch time things start to drop out. When it comes time for dinner, you can get one more peak.

This is what is called the meta-pattern of a chain or a pizza restaurant or our current situation. Question for you is to decide when you want to go for lunch. If you have a huge busy area around noon, you probably don't want to go in there.

The reason is that the place might be full, and you have to wait a while. Your ideal time frame or situation is to go in a little bit before that - 11 a.m. to have lunch. Or maybe around 1 to 2 p.m.

That's the pattern that's evolved as far as foot traffic goes in a pizza place or a restaurant. You have these things all over the place, all over your daily life. The same thing is in car maintenance or a fuel station. You have that meta-pattern where things break down.

This Is The Deal With Stocks

In stocks, we have the same concept. You have meta patterns when it comes to the trading day. Start looking at a trading day. The market opens at 9:30 a.m. at least Eastern Time. Then we close at four o'clock.

When you look at the meta-pattern of stocks, you have a massive spike in trading volume at that 9:30 in the morning. There's a lot of volume that comes in.

Then things slowly start to die out. Sometimes you'll get some spikes here and there. The pattern changes from time to time depending on which stock you're looking at.

But you're looking at an overall market. You usually have less volume during that rest of the day or the afternoon session. There are still things that happen. There's still trades going on, but it's less than usual that beginning the initial amount.

Then you get more volume towards the end of the day. This is typically the meta-pattern that happens and occurs in the market.  If you're getting a lot of volume in that place coming up in the open. And you might need to buy that stock. It's going up. You think that because it's going up and there's volume.

But the fact is that when you compare it to the previous day of its meta-pattern, it may not be as high. It may be only half as much. It may just be a third or 2/3 as much. The volume might be weaker even though it appears like it's more volume.

The same thing is if you're trading around two o'clock in the afternoon. You start trading, and then you see this volume picking up.

People are getting in on this stock. You wonder maybe you should get in. Volume is picking up, but this is a psychological fallacy. It plays mind tricks on you.

The truth is this. When people are getting in, they might be looking and doing a fire drill towards the end of the day. Doing so because they want to manage their positions, adjusting it for the next day or week.

The fact is if you're doing a day trade and you see this volume pick up - it's probably not wise to get into that stock. I'm telling you that because you know this volume is picking up at 3:00-3:30 just because it's part of that meta-pattern.

You're supposed to see more volume pick up. Just like when you look at a restaurant, you're supposed to see more volume pick up around lunchtime. That's the usual tendency. The same thing is with eight, nine o'clock in the evening depending on when you eat dinner.

You expect those things to pick up around that time around peak season. Here (with stocks) on a peak day the same thing happens. If you're looking at a peak day and you start seeing that the volume start picking up speed doesn't mean you need to go in it.

That could be the, and it could play tricks on you. What you need to do is compare that previous day of that same stock and see how it relates, compares. See that price action and behavior.

The whole point is to understand that here's our meta-pattern You need to evaluate and understand what's going on underneath the surface. That's the first main key sign to understanding meta patterns.

Once you evaluate those, then you can start looking at making some adjustments and variations. You can notice the differences and see what is breaking out. Sometimes these play tricks on you, and it's not breaking out. It appears so, but it's just a meta-pattern.

A Couple of Different Meta Patterns

Be aware of this as a trader. When you look at trading, in general, you'll have a couple of different things.

Meta pattern for the day

You might have more trades in that opening segment and then a little bit dip in the afternoon and then more trades towards closing time.

On a day to day basis, we have our opening bell. We have a lot of trades coming in on the open. And a lot of trades occurring in towards the close. This is just the way things work out.

You have day traders getting in and getting out. Also, you have people managing their positions. It could be day traders. It could be swing traders. There's a lot of trades happening. It's just a lot of noise there.

Meta pattern for the week

The same thing you have with a meta-pattern for the week. Typically you might have some swing traders. If we go from a Monday to a Friday you probably will see somewhat of the same concept.

You might see more trading on Monday. People are adjusting their position from Friday. You have more adjustments that are happening and then a little bit different as you look on Wednesday.

The Friday people want to be out before the weekend. They don't want to be caught holding over the weekend especially if it's a more extended weekend. You might have more selling on Fridays and things like that.

Meta pattern towards the month

You also have a trading pattern. At the beginning of the month and the end of the month as well you also have those things happening.

At the end of the month, there are more trades that happen. That's because all these portfolio managers have to send out reports to their investors.

If you're a mom-and-pop and you set let's say $100,000 to an investment company this is what happens. At the end of the month, they get rid of the nasty or ugly looking positions. Then they change them up to positions that seem a little more favorable. That's the case especially if they did a lousy job and then they make those adjustments.

They send the report out at the end of the month. They say in that report that your portfolio looks fun. The stocks at least they look good.

They put like nice-looking companies in there. It could be something like an Apple or something else that looks good on paper. That's how things work even if they may not have made a good return. At the beginning of the month, there's some rotation that happens because of that end of the monthly cycle.

On that third Thursday, third Friday of the month you have those SPX, SPY, IWM, the Russel all these options are expiring. There's a little bit more trading volume that goes around that area.

Seasonality meta patterns

Here we have a January to December, and we look at seasonality. There's usually more trading before the summer season.

There are:

  • winner season
  • summer season

At summer season there's usually less trading.

That is because all the big boys are taking a vacation. They trade a lot less because their schedule is different. Sometimes you have to be a little more cautious for the upside or the downside during that time.

The winning season is a little more active. That's when people are in their groove. Think of it as the school season.

Earnings meta patterns

You have a meta-pattern for earnings as well. Sometimes stocks will sell off a little bit depending on the stock. Sometimes they'll power into earnings.

Then after earnings, they'll either gap up or gap down. You have these gap effects when it comes to earning. That's the pattern.

What do you need to be aware of?

Well, be aware of the gaps. Those are the meta-patterns when it comes to earnings. One thing to keep in mind if you don't want to be loaded up on one side when it comes to earnings.

That stock can move. Either to the upside or the downside. You don't know. Stock's earnings reports can be fantastic, and it still sells off. Or it could be wrong, but because the expectations are good, it can power higher.

It doesn't apply just because you have good earnings that you're going to get a good stock price movement.

Fed announcements meta patterns

And then finally the last one is the Fed announcement that I want to talk about. Most people don't care too much about the Fed announcement throughout the week. They start to care a day or two before.

At that time sometimes stocks flatline a little bit. They're dead. Sometimes you'll see it run up and sometimes you'll see it run down. They're waiting and sitting on their positions. You do have a little bit more of a calm market.

Then when the announcement happens, it's usually a little more volatile, and then you find a direction. That direction can be down or up depending on what the announcement and the expectation is. You get a little bit of that volatility. You don't want to be trading when this volatile segment happens.

Volatile segments can happen in:

  • 5 minutes
  • 20 minutes
  • 1 hour

There are no strict rules. It can go around it. You'll slowly start seeing it drift one way or another. You want to be very careful here especially if you're new.

A lot of times you can use this to your advantage. If you buy low and then it pops, you get out quickly, and then it reverses, and it will continue going down - or vice-versa. There is a lot of variations.

What You Can Learn From This?

These are few meta patterns to look at as your trading. It's not all of them. There's a handful of other meta-patterns. This will give you a good starting line a baseline for understanding what a meta-pattern is.

You should be aware of everything you've read throughout these examples.

Quick reminder - day to day 

Just because the opening volume is large doesn't mean you need to get in if the price is moving higher. Because all of a sudden it could reverse. It's supposed to have more volume at the open. Don't get caught into these things.

Quick reminder - weekly

The same thing on the weekly. If you see things skyrocket on a Friday or a Monday that could be compensation from the previous week. Be careful and mindful. Be aware of those little segments.

Quick reminder - seasonality

Big boys think like this. I want to go on summer vacation, so I'll do less trading in the summer. That's just natural. And as you get back into September, October you'll trade a little bit more. You have that two-season cycle here where the volume drops a little bit. With low volume, it can be a little bit more dangerous in the summer months.

Final Words

These are the meta-patterns. It's essential for you to be aware of them so that you don't jump in at the wrong time. And with the inappropriate decisions.

You don't want to make the wrong decisions based on these signals. These signals can fake you out. The main reason is that you don't understand the meta-pattern. Don't allow it plays tricks on you. Learn everything you can.

You should evaluate some of the things you're watching it. See if they have a meta-pattern, assess those meta-patterns and start looking at the chart. That way you'll have a specific volume or more volume in certain situations than others. And that's what is all about.

Author: Sasha Evdakov

Sasha is the creator of the Tradersfly and Rise2Learn. He focuses on high-level education speaking at events, writing books, and publishing video courses on business development, internet marketing, finance, and personal growth.

I'm Sasha, an educational entrepreneur and a stock trader. In addition to running my own online businesses, I also enjoy trading stocks and helping the individual investor understand the stock market. Let me share with you some techniques & concepts that I used over the last 10+ years to give you that edge in the market. Learn More

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