Monday, June 10, 2013

Topping Patterns "Why Technical Tops Are Changing"

MetaStock SPRS Series - Week 122 - TechniTrader® Stock Discussion for MetaStock Users - Topping Patterns "Why Technical Tops Are Changing" - June 10, 2013
By: Martha Stokes C.M.T.

Topping Patterns have been changing shape, dimension, and magnitude for several years. Why Technical Tops are no longer easy to recognize is the fact that most Technical Analysis books were written 30-50 years ago, for a completely different market structure.

Sure there are still some recognizable tops but often times, the top has already moved down and is near support before it is visible on your charts. Why have technical patterns changed so much in the past few years?

Massive internal structural changes to the financial markets have created shifts in buying and selling strategies, patterns, orders, etc. by the largest and most influential market participant groups. While the retail side of the market continues to buy and sell stocks as they have for many decades the professional side has evolved, altered their methodologies, and are using brand new approaches to how and when they trade.

Because these market participant groups dominate the market controlling over 80% of all the market orders, lit, dark, and semi-lit venues from Exchanges to Dark Pools to ATS, their buying and selling patterns are now reflected in the candle price patterns on your chart.

AMAG had been moving up with momentum out of a bottom low. It ran up quickly to resistance and corrected on the short term trend, backed off of the resistance level and then shifted into a consolidation pattern. The next run up topped with a collapsing price in a few days. But there is no evidence that this run up which moved past the resistance level was any different than the prior run. Or was there?

The top is not at a resistance level, nor is it a text book pattern. It is not a V top or an M top and it is definitely not a Head and Shoulders top.

So what is it? It is a High Frequency Trading topping action. HFTs were the controllers of price during the run out of the bottom and the move up in April and in May. In both cases HFTs dominated and controlled price on critical upside days.

But in the new market structure, HFTs patterns like this one, are not continuation patterns BUT are warnings of imminent reversals. By understanding that HFTs buying patterns precede reversals rather than creating continuation patterns, the topping identification comes when HFTs activity increases at or just above resistance. Often HFTs will drive price above a resistance level and then quickly reverse to selling short.

These new topping patterns form because different market participants are using unique and new strategies and algorithms.

Trade wisely, 

Martha Stokes, C.M.T. 

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Master Rated Technical Analyst: Decisions Unlimited, Inc.
Instructor and Developer of TechniTrader® Stock Market Courses
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