1. Many technicians have observed that uptrend is generally longer in duration than a downtrend a typical uptrend seems to last about twice as long as a typical downtrend. The most significant reason for the persistence of uptrend is that we have been doing the majority of trading in an inflationary environment. Thanks to Federal Reserve monetary policies that presume that any inflation is bad in spite of the Fed.’s best efforts. There will always be irregular periods of waning prices.

2. An uptrend is generally less unstable than downtrends. For example: Many years ago there were times when the onion market prices actually appeared to be going to zero. The price was so cheap that brokers could take delivery of the onions only to throw them away and sell the empty bags at a much higher profit. The long side profits appear to have unlimited potential. Rising prices serve to increase demand and facilitate the existing uptrend while the short side profits are limited.

3. An uptrend always tends to end in spikes while downtrends end in flat areas. There is no limit to how far prices can be raised. As the market reaches the bottom there are rarely huge positions remaining to be liquidated. Traders are attracted to bull markets and the liquidity increases as the prices rise. While the down side prices make the traders look for rising markets.

It is to be carefully noted that all the above points are only general observations relating to non-financial futures markets. Securities or financial markets are not looped in this category.

Having understood and analyzed the basic difference between rising and falling markets we need to improve the design of our trading systems. Here are a few of the accommodations that purchasers may have observed-

1. 1. Few of our systems are designed only from the long side as we are using a multiple systems approach. Every system need not trade in both the directions. The long side is usually easier and more profitable. As long as our long system trade is out of trouble, we can wait for the uptrend to develop.
2. 2. More long-side entries are made when designing a system that trades in both directions which results in more long trades than shorts. We are intentionally building in a long side bias.
3. 3. Profits are often let out unknowingly when exit strategies in a system are designed. Short side profits are expected to be limited. On the long side we prefer to try and let the profits run.
4. 4. It is absolutely meaningless when price levels do not make sense to go short. For example; sugar has traded as high as 63 cents per pound and as low as about 1.5 cents per pound. The risk is obviously much greater than the potential reward.

There are fundamental considerations like supply and demand that influence the trading characteristics. These fundamental issues shall be discussed in yet another bulletin.

Our learning from the article; it is always assumed that there is a good case for the long side of markets than the short side. Entries and exits do not have to be regular. Traders disagree on which side is best because the characteristics of long and short trades are different.

about trading systems (1)

The key to a proper trading strategy drills down to the foundation of that strategy. To have the proper foundation, a solid understanding of how markets work and why price moves as it does is to be understood. Trading system should not have any flaw in thought process the existence of which lead to poor trading results. If we want a consistently profitable trading system, we had better make sure that the person on the other side of our trades is a consistent losing trader. Our system had better be an expert at finding a novice trader or we are in trouble. We don’t need to know the exact person on the other side of our trade, we just need to know if they are a consistently profitable trader or a consistent losing trader, and the chart will give us most of this information.

A proper trading system need to have reality based logical rules.

Failure à Success
In reality, a proper trading system means a simple transfer of accounts from those who do not realize market logic to the accounts of those understand the market logic. Trading systems just accelerate the process.

Most traders who develop trading systems don’t take this approach or think in the simple terms. Most traders do not begin their knowledge path by managing institutional order flow. The huge majority of traders will begin with a trading book or tutorial developed by a writer or speaker. It sure will NOT be from a real market speculator. Unlike real trading system, books are filled with conventional use of indicators and chart patterns that may not work. If so, the author would certainly not be selling the book to you. Instead he may be a leading trade broker in the market now. When designing your trading system, make sure you bring your foundation back to the basics of how and why price moves in any and all markets.