Sell Short Topping Formations

How to Identify New Topping Patterns Sooner

One of the challenges for Technical Traders is learning the new Topping and Bottoming Formations that have emerged in the past few years. The Sell Short Topping Formations in the current market can be a surprise for traders.

Topping and Bottoming Formation changes have occurred as the internal Market Structure evolved into a far more complex system of venues. There is now a plethora of new order types, routing systems, and order controls. These are especially for the giant Buy Side Institutions using Dark Pools and Twilight Pools, which are permitted to delay orders and hide huge quantities of liquidity.

The popular and well known tops of the 1970’s-1990’s started changing shortly after the Securities and Exchange Commission (SEC) and Financial Industry Regulatory Authority (FINRA) enacted the decimal system of pricing structure for stocks. The venerable fractions were eliminated with the intent of squeezing out the rouge Professional Day Traders. They were jumping in ahead of Buy Side Institution giant lot orders, using the advantages of wide spreads. Decimals shrunk spreads down to pennies, and then half-pennies for the professional side of the market.

High Frequency Trading HFT Firms evolved out of the Proprietary Professional Traders Market Participant Group to cope with the tight penny spreads. This altered order routing, order types, and increased the number of venues.

Technical patterns changed, morphing slowly into the new Topping and Bottoming Formations that now form on charts. Unfortunately many Retail Traders and Technical Traders have fallen behind in learning these new patterns. The chart example below has a new Topping Formation.

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Martha Stokes CMT

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