Monday, April 15, 2013

Sideways Market Blues

MetaStock SPRS Series - Week 114 - TechniTrader® Stock Discussion for MetaStock Users - Sideways Market Blues - April 15, 2013
By: Martha Stokes C.M.T.
Martha Stokes, CMT is the speaker in the upcoming MetaStock Webinar "Explorations: Beyond the Basics" on April 24th at 2:30 pm PDT/ 5:30 pm EDT. Register for this live event here.

A work booklet for this Webinar is available after registration.

Right now on the institutional side of the market, things are very quiet. However in the retail trader blog rooms, forums, and in particular the day trading rooms where retail traders congregate and communicate opinions, there is nothing but frustrated comments, angry attitudes and blame.

Institutions are sitting with high profits, while retail traders are losing, losing, and losing. I call this the "Sideways Market Blues" Syndrome.

The stock market has been in a sideways pattern for a few weeks now and while the professionals step back and wait patiently much of the activity in the market is retail traders struggling to squeeze a few pennies out of a swing trade or intraday trade.

The automated market has created a whole new methodology for the professional side, and totally different approaches to trade transactions. Yet few retail traders are aware of the changes and continue to attempt to trade the markets with outdated strategies that fail dismally during sideways markets.

Meanwhile the institutions are setting trigger points, adjusting stops, and waiting. The retail side is blaming everything, anything, and getting nowhere. Stocks that look poised to move whipsaw and the retail trader gets angrier.

The Market Condition Scans for Momentum analysis have been warning for some time that there is insufficient momentum energy to create strong swing style runs both for intraday and for regular swing style trading. But retail traders are doggedly determined to force the stock market to their will, trying to find some strategy or system that will find stocks moving strongly and steadily either upward or downward that they can trade.

This is called "Traderitis" and It is a phenomenon uniquely retail. The institutions do not suffer from this malaise. With preset price zones for Dark Pools and trigger entry signals for HFTs, the automated world of the professional , which is about 70% can pause and wait, and does wait, with uncanny accuracy and remarkable uniformity.

Retail traders confuse market maker trading activity and assume they should be able to find and trade stocks every day the market is open. This creates whipsaw action during periods when the 2 largest Market Participant Groups automated orders stop triggering. The automated orders stop in harmony, but retail traders are completely unaware that there are few large lots and even less momentum energy.

Read the full report here.

Retail traders tend to use the outdated Market Breadth, Market Advance/Decline and other Market Indicators to attempt to interpret the market, but these indicators are usually only viable during extreme conditions. They are ineffectual in a Sideways Market. What is effective is an evaluation of overall numbers of stocks moving with momentum and in what direction.

If there are only 55 stocks moving with strong momentum to the upside out of the 8000+ stocks, ETFs, and ETNs on any given day, then a retail traders chance of finding the few stocks that will move strongly are heavily weighted against them.

High Frequency Trader HFT orders do not trigger heavily every day and more of their trades are pulled or canceled than ever reach the marketplace. That leaves most retail traders trading against each other during sideways consolidating markets when the Dark Pools and HFTs are not firing off orders.

Since the HFTs and Dark Pools both use automated orders, they do have a stronger tendency to work harmoniously and function as if they are aware of each other even when they are not. This is the side effect of an automated marketplace where most orders are executed by computers and not by humans.

The automated order systems actually exacerbate the stalled market, often creating insipid action that lasts far longer than it did before the markets were so dominated by automated orders.

By understanding this phenomenon, retail traders can actually improve their profitability and their trading success. If the momentum energy of the market falls below the normal range based on the "TechniTrader® Market Condition Analysis Scans," then whipsaw risk rises dramatically. Unfortunately market Indicators will not tell a trader this fact so many retail traders are trading a market void, without sufficient energy in a large enough basket of stocks to shift the odds in their favor.

Day trading and swing trading require sufficient momentum energy to be in a large group of stocks, ETFs, and ETNs so that the runs can sustain long enough for good point profits.

The reaction by many retail traders however, is not to wait but to plod along, and keep shrinking their timeframe and profit gain expectations. This only increases their risk of chronic small losses and frequent whipsaw trades.

Trade wisely,

Martha Stokes, C.M.T.
Member of Market Technicians Association
Master Rated Technical Analyst: Decisions Unlimited, Inc.
Instructor and Developer of TechniTrader® Stock Market Courses
MetaStock Partner
©2013 Decisions Unlimited, Inc.

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