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New Highs, New Lows?

New market highs have various meanings, from, go “all in” long or long positions only. However, some traders will say, go “all in” short or short only positions. So, the question is, what does a trader do when the market hits a new high? The long and short of it, no pun intended, is it depends. Meaning, a market new high for the day does not imply market direction as much as the high of the week, or high of the month, or high of the year. Hence, if we look at the math, technically each new high provides about 25% implied direction. For instance, there are 4 types of new highs; day, week, month, year. So, a market that hits a new high of the week kind of implies a 50% long directional market. Hence a bullish market is implied. But, where would be a good place to set a stop loss? Well if your trading strategy and financial risk allow it, a good stop loss would be the low of the last weekly high break. To continue the logic, a yearly high break would establish a stop loss at the low of the last yearly high break. Thus, the stop loss positions could be very steep, and one must take caution when the trading strategy is “breakouts”.