Friday, 5 August 2011


The markets were like a schizophrenic bipolar monster that forgot to take his medicine - crazy, volatility was off the scale.

The nonfarm payrolls number was released at 13:30 (BST), I was on the train on my way home from work, it came in at 117K, 26K higher than expected.

The NASDAQ futures moved in a 42.25 point range inside 1 minute, an excellent example of why trading in front of news is a bad idea.  Anyone short into that would have got blown away almost instantly.

Today was a rollercoaster of a day for the markets, VIX spiked up to 39.25, last seen in 2008/09 during the credit crisis.

Anyone trading amid this volatility must be crazy.

I had three trades today;

The first was what I thought looked like an opportunity to get onboard a developing flash crash.  The E-Mini NASDAQ had been as low as 2180 in pre-market trading.  The nonfarm payrolls number catapulted the NASDAQ from 2197 to 2239.25 at 13:30, the market then sold off down to 2211 before rising back up to touch the 2239 level.  There then followed a strong bout of selling that got progressively steeper and steeper and steeper, I didn't want to miss a ring-side seat to a flash crash so I went short at 2179.50, the market kept selling off down to 2172 and stopped dead, I moved my stop to 2177.25 so I would at least get something out of if, the market rallied sharply taking out my stop for a 2.25 point gain.

Entry and exit (First red/green vertical lines)

I then had a sell signal on E-Mini Dow Jones futures at 19:00;

There were also sell signals on SPY and DIA at the same time.

In additon to this there was clear divergence between the NASDAQ and key currencies;


Went short at 2213, the market sold off down to 2195.75, before rallying up taking out my trailing stop, filled at 2204.25 for an 8.75 point gain.  The stop ought to have been trailed to 2203.75 but for some reason it wasn't, my platform was slow today, I guess the servers at ThinkorSwim must have been overloaded or something.

Entry and exit (Second red/green vertical lines)

I then had a further sell signal on SPY at 19:50;

Went short at 2195.50, the market sold off to 2186.5 before rallying back up taking out my trailing stop, filled at 2193.25.  For this trade I actually used a 5 point trailing stop, mainly since it was close to the close, clearly something was not quite right at ThinkorSwim HQ since my 5 point trailing stop (held on their servers) ought to have trailed the last price, therefore as the price had been to 2186.5, the trailed stop ought to have been at 2191.50, but was actually 2192.50 when the market order to exit was triggered, so I only got out at 2193.5 for a 2.25 point gain (due to slippage).   I may look at changing my trailing stop loss orders since in volatile conditions the trail point is far too slow to update, it doesn't keep up with the market at all.  It's a shame the CME doesn't allow trailed stops held exchange side.

Entry and exit (Third red/green vertical lines)

Of course in hindsight the very obvious trade was to short the rally up to the pre-market high created on the nonfarm payroll market reaction, I did consider it at the time however I use charts that update on a 1 minute timescale and the next print of price on my chart was 7 points away from the pre-market high so I thought it had moved too far to enter short, of course the market tanked 59 points following my decision not to short at that point.  I have gradually been discovering tick charts.

What are tick charts?  These are explained here.  Tick charts are nothing to do with the $TICK indicator that tells you how many stocks are "ticking" up or down by the way.  Tick charts give you a much better feel of what the market is doing.  In fact at one point I felt like going short based on the charts, I didn't, but I should have as the market sold off 13 points thereafter.  Of course I'm new to the discretionary trading game having only previously taken trades based on my  indicators, but it's an interesting avenue to explore further.

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