Monday, February 29, 2016

10AM is the New 11AM in These Current Market Conditions

10AM is the New 11AM in These Current Market Conditions

I've said in a prior post that generally speaking lull usually starts around 11AM EST because mainly that's 1 hour before 12PM EST so people are starting to get ready for lunch in the east coast and also people on the west coast have placed their morning trades and are now off to work.  However since about the end of January/beginning of February the market activity has diminished greatly.  With lots of macro forces such as oil, gold, China, the Brexit from the EU, etc... pulling the market in all sorts of directions in an economic see-saw battle, we've seen lots of uncertain, choppy, low volume action which rather that starting at 11AM EST, has been commencing as early as 10AM EST, giving us really only 30 minutes of easy, high percentage trades for the AM session, which really sucks...

That's not to say that it's impossible to make money in this market, but it's definitely gotten harder due to the fact that there are less opportunities and once the volume dries out, we all know that trading into the lull hours when the algos take over is basically like handing your money on a silver platter to the market makers.  Without making this post overly wordy, I'm just going to post a few charts of a few recent stocks that were in play and let them do the talking. 





So as you can see the window for us to find easy trades with very high edge has undoubtedly dwindled in this market.  But remember the market is variable and we must always adapt.  Trade with discipline, walk with profits when you see the edge is gone.  Don't develop FOMO when you miss a big move and then trade into the immediate chop that ensues when the liquidity vanishes.  

Yes I know it's a shitty feeling when you hesitate or fumble your orders and don't get filled on a big money trade and that turns out to be the only good trade of the day and you're left with bread crumbs after. But take it from me, you've got to mustard the discipline to walk away even if you're up 0 or slightly negative because once the liquidity disappears and the algos take over after, you're going to be taken for a ride you wish you didn't get on...

I've ended my mornings at 10AM EST the past 3 trading days and ended up with 3 straight days of $2K+ profits after a shit show of a performance before that where I pretty much bagheld an MBLY short past 10AM nearly to 11AM and lost five figures.  Always make changes to your strategy as the market changes! 

Good luck and be safe out there guys.


Tuesday, February 2, 2016

Resisting the Temptation to Trade During Lull Hours (11:30AM EST-2:30PM EST)

Resisting the Temptation to Trade During Lull Hours (11:30AM EST-2:30PM EST)

Recap of My Extremely Shitty VRX Trades That Turned My Solid Day into a Shitty One Very Quickly

Let me start be defining what “Lull”, “Dead”, “Lunch” hours are.  Some people define them as being from 9AM EST-10AM EST, some stretch it out to 11AM EST and end it at 2PM EST, but for the sake of this article I’m defining them based on my own personal observations and experiences and I’m saying they are from 11:30AM EST – 2:30PM EST.  These are the hours where the volume tends to be very light and the action tends to be choppy and/or grinding.

During these hours, the “house” or the market makers have the edge because they are able to manipulate stocks A LOT more easily because of the lower liquidity.   Lower volume means they can prop bids and hold down asks with less money and risk to them.  Of course, it’s relatively easy to tell that when there’s nothing moving during these hours, (i.e. low volume, sideway charts, grinding charts), you shouldn’t be trading because there are no obvious opportunities.  The trouble comes in where you get a random play that moves big on abnormally higher volume during these hours and this is where I admittedly struggle with. 

Obviously during the slower hours, you’re more likely to get bored, this is why I always emphasize that you need to walk away, but when something starts moving randomly, your eyes are going to open wide open and you’re going to get excited and you’re going to be tempted into trading this random stock that is popping for whatever reason.  However, again we are still in the lull hours, the market makers still have the edge here with their algos running in full force and the thing with midday movers you also don’t know how if the market makers have frontloaded the move which adds another dangerous degree of uncertainty when attempting trades on these midday movers.

The stock that suckered me in today was VRX.  I was up $3.4K on the day up to this point and already recognized that all the tickers from the morning were no longer tradable and I decided to take my usual trader nap.   All of a sudden my alert blips and I hear that VRX was tanking.  I initially resisted the temptation at first and ignored it but after hearing repeated alerts of VRX tanking I eventually couldn’t resist anymore and got up from my nap and attempted to trade it, which ended up being a very critical mistake.  Not only did I attempt to jump into the stock after it already made the move, I also ignored the lower diminishing volume and choppy action as well as the manipulative hidden size orders by the market makers that kept grinding the stock against me.  On top of that I kept averaging up, which just compounded the exceptionally poor sequence of decisions that were made in a very short period of time that turned a pretty good day of gains into a sea of deep red. 

Here’s the chart so you see why it was hard to resist trading this move but also so you can see why it was dumb to trade into it as well.

Overall, moving forward, I must resist the temptation of trading during lull no matter how good a trade looks.  The market makers have the edge here and their algos WILL chop you up 9 out of 10 times. Trading with size on top of that, is basically just handing your money on a silver platter to the market makers.  On occasion I might find a good trade during these hours, but I MUST trade with much smaller size to protect my gains from the morning.  Sure I may leave profits on the table sometimes but if that means that I will never flip my solid profitable days upside down ever again, then I’m willing to sacrifice that for the sake of my trading career.

Here's to not getting suckered into trading during lull hours again!.