Crunch Point Trading

[TheNegotiator 13]

With the shenanigans going on in the EU summit today, I thought it pertinent to discuss trading before, but more importantly after highly anticipated news, economic releases or speeches. To qualify this I am talking about things which you can sense have the potential to be really big in the days leading up to the event.

 

Here are a few ideas off the top of my head.

 

Pros.

 

Before the release, there is often book balancing and is often fairly predictable in its manner.

 

After the release the market can really move.

 

Important price objectives can be met and important extremities formed.

 

Less noise and more market flow.

 

 

Cons.

 

Before it can sometimes be that the market is just flat.

 

If the release gets leaked early, you can be caught with you pants down.

 

Strong initial reactions to a release can frequently end up the wrong move to follow.

 

You can get in and be stopped before you're right.

 

Greed can be a problem.

 

 

Some considerations if you do want to trade it.

 

Do you trade it normally or would you adjust your strategy?

 

If you vary your size how would you do so?

 

What is the basis for your assessment of risk and therefore you stop placement?

 

Do you trade momentum, breakout, failed breakouts, fade important levels?

 

Do you need a good/fast news source?

[TheNegotiator 13]

For me, I am more than happy to trade in the days leading up to the release. Depending on the market behaviour I may end up taking smaller profits per trade. After the release, I am far more comfortable trying to understand what is going on. My rationale is that if a release is going to carry forward a big significance, it's better for me to understand what is happening at the time so I can better trade the coming days than risk getting involved in an emotional rollercoaster. I believe that even if you manage to take 4 times what you'd make on a reasonable day, it's about what you do over 100, 200, 500, 1000 days and one great day means nothing in the long run. Actually that does remind me that a potential consequence of having a belting day is over-confidence. That's a very dangerous thing for most traders even if the p/l is looking sweet!!

 

Anyone else have a different take or strategy for these sorts of days? I know some guys make a living off trading solely in this type of market.

[TheNegotiator 13]

Con.

 

If you are trading and your connection goes down, you could end up way offside before it comes back online(or can get through to your broker's trading desk). :puke:

Edited October 26, 2011 by TheNegotiator

[zdo 20]

Playing the extremes of “crunch points” (instead of the breakouts, btw) has developed over the years to one of my favorite times to be trading – simply because it is exciting. I always aspired to be great at it, but back in the early days had a lot of white knuckle and adrenaline ‘side effects’ to deal with. It’s easy money if you can accept the short term heat. Keys are experience and never to be oversized. I liken it to being up on the stick in a old biplane using intuitive measures instead of normal trading which is like flying a jumbo jet with all kinds of precise instrumentation…

With practice you can get good at hitting at the market during the final surges in excursions.

 

My (quite unnecessary) 'mental' confidence is based on the stats that a high percentage of news releases and reports, etc. that have immediate wild excursion away from starting place return back near to where they started from within hours – with even higher freq. than in the old days. Haven’t ran the stats, but I also believe the excursion ranges are also not as extreme as they used to be...

... and related to this, I have gone offline during 'madness' ... because of these tendencies /stats, it's nothing to really worry about. If you have to, you can always overwhelm any remaining heat later with size - that is if you're not oversized to begin with...

 

 

 

Negoc8r, a compliment - you are a great poster and a super moderator too. Thanks.

Edited October 26, 2011 by zdo

[TheNegotiator 13]

I have to say fading extremes would be my best bet if I were to trade it and then scale out of a good chunk pretty quickly. Going with it can be a strong urge but can be dangerous too. Maybe I'll look at implementing a plan for the future. If I do though, I think I'd open a separate account to ring fence the risk.

[TheNegotiator 13]

Well the kind of moves which could've happened yesterday didn't materialise. However, it looks as though we might go for it today given overnight activity. Who knows. Anyway, early on yesterday, a very clear selloff did happen and it was fairly easy to get onboard. The "how much" question was more the issue!

 

But it goes to show that even if the actual event itself ends up not producing fireworks, the pre-event trading can be quite productive.