Percentage Stop Losses Trigger High Frequency Traders

Differences in Uptrend and Downtrend Trading

The uptrend and the downtrend are not mirror images of each other, nor can you use the exact same indicators, indicator period settings, or subordinate indicators. The downtrend can drop and gap down on low volume because percentage stop losses trigger High Frequency Traders.

Many Retail Traders assume that if they learn the upside price action, that when the trend turns down it is just the opposite price action. That is why so many Retail Traders struggle to exit stocks before the trend tops and runs down. In addition it is why many Retail Traders who try to sell Short as well as Options Traders who buy puts, take so many losses in their trading.

If you are a Position Trader, you will be trading the uptrend and sideways trend. If you are a Swing Trader you must trade the uptrend and downtrend, and adapt for the sideways trend. Swing Traders must be able to take advantage of both the upside and downside price action, in order to net profits that are close to what a Position Trader can achieve. However, the Position Trader will generally always have far higher returns.

The sell side or downtrend is very different from the uptrend or the sideways trend, because there are fewer Market Participants. Giant Pension and Mutual Funds do not sell short.

They may buy Option Puts or ultra-bear Exchange Traded Funds ETFs as a hedging or mitigating strategy when the market goes down, because they are longer term investors. Smaller Lot Investors, Corporations, Billionaires, other wealthy Individuals, and Foreign Funds also do not sell short.

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Martha Stokes CMT

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