Why does the Shanghai market rise and fall so rapidly? It's a question I have been asked many times in the past week in the face of the rapid fall in the Shanghai index.

Hong Kong Stock Exchange | South China Morning Post

The standard explanation is that the Chinese market is dominated by retail traders and they cannot be trusted. Its they who are responsible for the rapid falls. The average holding period for stocks on the New York Stock Exchange is less than 1 second and this is an exchange dominated by institutional and fund managers, not excitable retail traders.

In these same fund managers were the ones busy selling their investments while, at the same time, telling their clients not to panic and not to sell. This is clear from the composition of the volume sales on the first days of the falls. The explanation for Shanghai market volatility lies elsewhere.

There are four structural factors which contribute to the accelerated rises and galls in the Shanghai market. The first is the limit up limit down restrictions. Image you are a seller. You want to get out atbut the stock is locked limit down at and your order is not filled.

The rational reaction is on the next day to offer to sell at a lower price, say 98, to make sure you get out before price locks limit down again. The reverse applies in a rising market as buyers bid higher to get stock before it locks limit up. The result is both up and down trends accelerated unnecessarily. The second explanation is the ban on short sales.

This means the market can only be traded form the long side. In a falling market the options are to sell quickly — china mobile shanghai stock exchange to the cascade effect of selling. Or to simply sit on a loss. There is only one rational course of action, and this contributes to an acceleration in the wave of selling. The third explanation is the ban on intraday trading. Stock you buy today cannot be sold until tomorrow. This has the effect of site with binary options betting system the stops so the move downwards is not slowed by incremental selling.

Instead the affiliate earn money referral programs on stop is concentrated on the day following the initial fall. Again this accelerates the downtrend.

The final factor is the lack of derivative markets which can be sued to hedge a falling market. This leaves investors with few alternatives pakistan rupee euro rate a falling market.

Selling is the rational thing to do and when everybody has only this choice then naturally the market fall is amplified. This is not a sign of irrationality, but a sign of extreme rational thinking. These are structural factors that impact the Shanghai market.

In this environment the key focus is on the strength of support levels in the Shanghai Index. Traders watch for consolidation support to develop near 3, Once support is confirmed then they will enter the market as buyers. Daryl Guppy is a trader and author of Trend Trading, The 36 Strategies of the Chinese for Financial Traders, which can be found at www.

He is a regular guest on CNBC Asia Squawk Box. China mobile shanghai stock exchange is a speaker at trading conferences in China, Asia, Australia and Europe. He is a special consultant to AxiCorp. For more insight from CNBC, follow CNBCopinion on Twitter. 60 second binary options trading strategies australia Europe Stocks Commodities Currencies Bonds Funds ETFs Investing Trading Nation Trader Talk Financial Advisors Personal Finance Etf Street Portfolio Watchlist Stock Screener Fund Screener Tech Mobile Social Media Enterprise Gaming Cybersecurity Tech Guide Make It Entrepreneurs Leadership Careers Money Specials Shows Video Top Video Latest Video U.

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Shanghai Stock Exchange trading has its own timing logic Shanghai trading rules have a major impact on buying and selling patterns Ban on short-selling hits investors.

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An investor rests on a chair in front of screens showing stock market movements at a securities company in Beijing on November 9, This idea is patent nonsense.