Swing Trading | Ninja Trading

Street Smarts By Linda Raschke: An Excellent Book On Swing Trading

May 2, 2010 — 8:41 am

I read the book and basically confirmed some of the patterns that I’ve been trading for years. Everyone has it’s own name for the setups, but regardless of the name, the patterns describe in the book, do work!

Everyone has their own twist to these patterns. I notice one reviewer had mentioned that he profited on the exact opposite strategy that the book had described. Selling new lows and buying new highs. Personally I think this is more dangerous than the strategy in the book(Buying new lows and Selling new highs). That is what swing trading is about. I do the same exact strategy as they mention in the book, and make money from it frequently. But I am also aware of the fact, that new lows/highs are set for strong fundamental reasons, so instead of using regular stops, I use Stop and Reversal(SAR)type orders. These order give me the best of both worlds. If my estimate is correct, I get an early fill as the market decelerates in one direction and accelerates in the opposite. If the trend continues, my SAR order gets me out, and fills me in the direction of the momentum. Price, Momentum, Time and Volatiliy and how you react to them, is the key to swing trading.

It’s not set in stone that these patterns work everytime, but as the title mentions, it’s the probabilities of the markets reaction when these patterns form. Like any other method in trading, nothing works everytime, but as years go by, you find out what works best for your trading style and what doesn’t. This book didn’t teach me anything that I already have found out through experience, but for traders interested in swing trading, it’s a fantastic starter book and worth the investment if purchased. It excerises the mind’s of traders on how to anticipate the market, thereby always thinking one step ahead of it. And when your anticipation is wrong, get out!

One other important factor. Rashke was a former successful floor trader and Connors was a hedge fund manager. These people know how to trade professionally. They know how other floor traders trade on the floor, and how institutional giants such as ADM,Refco and Rosenthal Collins play their cards and make money. In other words, their livelyhood depended on their attention to detail in the area of trading. They aren’t like most us that trade, that have a job to fall back on. This is their job and main source of income! My point is, don’t just learn their techniques,setups and strategies, but more importantly, learn their mindset, and what they do when the market moves in favor or against them. Determine how they react to such conditions and take notes! Through time and experience, you’ll soon notice that you will be able to react with percision and timing as these professionals do, without doubt but with full confidence!

Read More at Street Smarts
and Here: Tradestation

Read important information in the sphere of forex trading – please make sure to read this site. The time has come when proper information is really within your reach, use this possibility.

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Swing Trading

tradestation

Hassam

How To Quickly And Easily Find Trend Transitions

April 19, 2010 — 1:40 am

Simple is best when trading the market. Most traders get fooled by that idea and think a good method needs to be complicated to make profits. Not from my experience. Simple doesn’t mean ineffective. This easy, yet effective technical tool will keep you in good trades and show you when to exit the losing stock market trades.

Correctly drawn trend lines are a simple, yet very effective tool. This drawing method is different from most you’ve seen, but it is a superior technique. It helps keep long trades profitable by keeping you in the trade. It will alert you to a possible exit before a move down, and it will show you the beginning of a new uptrend.

Properly drawing trend lines is one of the most valuable skills you can learn. Here’s how to do it – let’s start with an up trend and draw the line.

First you need to find three important data points – the lowest low before the new uptrend, the highest high that ended the up move, and the last low before the final high. Draw your line up from the lowest low making sure you touch the last low before the last high. Continue the line past the final high.

To draw a down trend line do the opposite – find the highest high of the trend, find the lowest low, and the last high before the last low. Draw straight down making sure your line touches the last high before the low. Continue the line past the final high.

Try this technique on a variety of charts and you’ll soon see how it can alert you to an important trend change. For example, open a weekly chart of the NASDAQ Composite and shrink your data so the October 2008 through January 2010 price bars fill the screen.

Do you see the lowest low? Hint – it wasn’t in November 2008.

Do you see the last high before the last low?

The trend line starts at the March 2009 low. The final high, before the trend changed, was January 2010. The lowest low before the final high was in November 2009. Draw the line up and touch the lowest low of November 6, 2009. Continue it past the January 2010 high.

Do you see how this line waved the red flag warning that a trend change was occurring? Prices fell sharply once the trend line was broken to the downside. Switch your chart from a weekly to a daily and you’ll see the evidence.

Keeping trend lines current is wise. You might need to readjust them as time progresses as a lower low or higher high will probably occur.

Market moves can be sudden and swift, but being prepared can prevent losing all your profits, poor decision-making, and knee-jerk reactions.

This technique is valid on all time frames. Try keeping trend lines on a couple of different time frames. A break of the higher time frame’s line is the most important. If you trade from a 5 minute chart draw a line there, but on a 10 or 15 minute chart as well. Daily chart traders should keep lines current on a weekly chart.

Remember, you don’t need to know a lot of trading techniques to make money in the stock market, but you must know a few techniques very well.

Visit stock market investing and stock market trading tips for more trading techniques and tools.

Good luck with your trading!

Fetch important recommendations about forex trading online – please read this publication. The times have come when concise information is truly within one click, use this chance.

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Swing Trading

stock market trading technique

Hassam

INO TV – An Alternative To High Priced Trading Courses

December 17, 2009 — 8:17 am

How are you paying per trading course? It’s rare that I come to you like this, but I’ve had a revelation after a recent email I received. You and I both know there are plenty of good trading courses out there, but for traders just starting out, they’re a bit pricey. So why are we paying thousands when we don’t have to? Well, here’s the answer to my revelation that should satisfy all. It’s called INO TV and I have an “on the house” preview just for my readers…

INO TV gives you access to educational seminars streaming live just for traders. This on the house preview includes Dan Gramza, Derek Sammann and Joseph Raia! I recommend you tune in to watch these 4 seminars today. Remember, they’re on me! Enjoy, while I keep looking around for more good values for you, the trader. When Adam Hewsion asked me to review his INO TV service, I told him I really don’t have time. But he was persistent so I did it. As I started to explore the site… I got excited! For those of you who are new to the scene, in early 90’s there was this symposium called “TAG”. (Technical Analysis Group) that was I believe an annual or biannual event. All the biggest and best minds in the industry were there, and it offered traders and investors one of the only places to immerse themselves in trading ideas. (Remember this was the pre expo, pre Internet media era..) They recorded these presentations, first as audio cassettes (remember those?) then video later on… Well, INO TV has the rights to ALL THOSE SEMINARS! I also secured a link for you to watch 4 seminars for free! I have just scratched the surface as I believe they have some 500 titles. Some of the names I am excited to listen to are…

* Mark Cook
* Linda Raschke (Her “Short Skirt” presentation was one of the first seminars I ever attended! Well worth the price of admission alone…)
* Richard Arms (The inventor of the TRIN)
* Larry Conners
* Toby Crabel (Who’s book Day Trading With Short Term Patterns and Opening Range Breakout sells for $1500 on ebay.)
* Mark Douglas
* Dr. Richard McCall
* George Lane (The inventor of Stochastics)
* Victor Niederhoffer
* Martin Pring
* Jack D. Schwager (Author of the Market Wizards series.)
* Victor Niederhoffer
* Peter Steidlmayer

And a ton more…. The best thing about most of these presentations is that they are old…(Really!) These ideas are universal and still as powerful as the day they were given…Yet I bet you money right now that many of you don’t know some of the names I put up on that list… That means that most of the other traders who have come to the markets recently are also in the dark! There is gold in them thar’ videos, and not much competition for what once were dominate investment strategies. The service is $100 a year for unlimited on-demand streaming access to their entire library. You will be amazed at what you see up there. It will really help your trading. Raschke’s Slump Busting Techniques” presentation is again more then worth the hund-ski.

A good trading education = a good trader = good profits

If you have not had the chance I strongly recommend that you check out this educational resource for traders, as it’s something I personally use and enjoy. You see, it’s no longer necessary to spend thousands of dollars, travel great distances and be away from home and family to understand the secrets of the market experts. It doesn’t matter where you live, it doesn’t matter if you are just starting to trade or a seasoned pro … this “brain trust” of trading experts has the potential to change your life. Check out how INO TV can provide you with the trading education and answers you’ve been looking for. I know capital is tight, but you can’t afford not to check it out today.

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Bonds, Commodities, Day Trading, Exchange Traded Funds ( ETFs), Forex, Futures, Investing, Options, Position Trading, Stocks, Swing Trading

adam hewison, ino tv, ino.com, trading course, trading courses, trading education, trading seminar, trading seminars

Hassam

The Simple Way To Use Trend Following As A Market Strategy

December 15, 2009 — 4:15 am

Trend following is a stock exchange strategy that takes benefit of both the swings and roundabouts of the market. It’s a strategy that employs risk management to minimize likely losses. Traders who employ trend following enter the market after a trend has been revealed, they don’t attempt to forecast trends. They determine how much to speculate in a selected issue based primarily on the dimensions of the trading account and the stableness of the issue.

Most trend supporters invest in sophisticated software that can be programmed to exit if the trend changes all of a sudden. Then the traders do nothing and see if the trend reasserts itself before reinvesting. This is about following the already established pattern of certain stocks.

Price is the first rule of trend following. Other indicators are not important, although they don’t seem to be completely disregarded. The second factor is the decision of how much to trade. The timing is less vital than the amount of the trade. Then there is the exit strategy. When to get out if the trade is unprofitable or if the trade is profitable. Ultimately, you may set a stop loss for the maximum satisfactory loss.

Before entering a trade, most trend disciples will test it on their software so they can appraise the likely hazards and gains. The software is programmed with various factors relating to the particular trade. The trader then decides if he should make the trade under consideration.

One difficulty with trend following is the impact that unforeseen events can have on the market. Political upheavals, natural disasters and other events can effect the market in both positive and negative strategies. When Hurricane Katrina cause large damage to oil rigs and pipelines in New Orleans, the cost of oil and gas zoomed in the expectation of deficits. Although no severe shortages happened, investors and trend followers, in both the exchange and the commodities market, kept the price of oil elevated for months after the event.

All market investments are of a hopeful nature. The technique of following trends is one of many used by backers. It allows stockholders to use downward trends as well as up swings and make a profit in any kind of market. Trend supporters hold stocks for longer than those who use hot stack secrets in which the buy and sell could be concluded in a few hours. They also exploit sophisticated software which can assist them in making there calls.

I you don’t have a plan and the right information when you enter the market, you will almost certainly lose cash. Learn all you are able to and employ trend following together with other proved techniques and you will make the most of your investment bucks.

Find more on best trend following system and trend following systems.

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Stocks, Swing Trading

Business, Credit, debt, etf, Finance, financial, Investing, investments, newsletters, Stocks, trading, trend following, trend trading

Chris Cole

RSI Relative Strength Index

November 8, 2009 — 2:49 am

As a trader, you should be familiar with the different technical indicators that are used in trading. Now technical analysis studies the past price action to predict the future price action. Technical indicators are an integral part of understanding the price action that is taking place in the market. Relative Strength Index is a highly popular technical indicator and widely used by the traders to trade different markets. Relative Strength Index (RSI) is a type of momentum oscillator. You must know what momentum means from your high school physics. RSI is a momentum indicator because it RSI follows the uptrend or the downtrend in the security prices. Now why RSI is considered to be an oscillator because RSI always fluctuates between 0 and 100%! Another feature of RSI that is considered to be very important by the traders is its levels that indicate when a security or a currency pair is considered to be overbought or oversold. When a security reaches one of these levels, an experienced trader always gets ready for a change in the RSI trend.

Most of the technical indicators are lagging. What lagging means is that they follow the price action! RSI indicator is also considered to be lagging as it compares the strength of the security or the currency pair on its up days with its down days and this way an RSI indicator can cut through the erratic changes and really confirm price movement. In some ways, it is also considered to be a leading indicator as you can count on an RSI indicator to change ahead of a currency pair’s or a security’s price action.

Another intriguing concept is the overbought and oversold levels. Most of the time you will hear the security or the currency pair being overbought or oversold! 30 on RSI is considered to be an oversold level and 70 as an overbought level. How do you know that the security or the currency pair is overbought or oversold at these levels? These overbought and oversold levels were introduced by a famous Technician J. Welles Wilder who had introduced the RSI indicator in his book, “New Concepts in Technical Trading Systems”. These are just relative numbers. Keep 30 and 70 in your mind and when these two levels are penetrated look for confirmation from other indicators.

Now Wilder in his book quoted above had recommended these levels. The oversold level of 30 and the overbought level of 70 are indicated as lines on the bottom of the chart to let you see when these two levels are crossed by the RSI. So when you see one of these levels penetrated, time to get on your toes and get confirmation from another indicator. Wilder also suggested to use 14 as the standard number of price periods for calculating the RSI.

Calculating an RSI on your own with a spreadsheet is fairly complex. If you try to calculate the RSI indicator you may take a few pages! You just need to know this the RSI indicator takes the up and down days and plugs that data into a fairly complex formula to come up with a percentage number between 0 and 100. However RSI is very easy to use in practice. It is shown on the bottom of the chart as a slow moving line. By comparing this slow moving line at the bottom of the chart with the main candlestick chart in the upper part of the chart, you can understand what is happening to the price action.

Most of the time RSI will try to follow and mirror the movements of the price action in the top part of the chart. However, sometimes RSI will flatten while the price continues to move or even move in the opposite direction. When it does so, this change is known as Divergence. Divergences are the key to using RSI. Divergence is the most powerful tool in trading. More on the divergences in a later post!

As said earlier, you cannot simply use an RSI to buy when it hits 30 or selling when it hits 70. It is always good to combine the RSI with candlestick patterns or a divergence in RSI. So you have to combine it with other indicators to give more reliable buy and sell signals.

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Commodities, Day Trading, Forex, Futures, Stocks, Swing Trading

relative strength index, rsi, rsi indicator

Hassam

How To Draw Trendlines?

November 7, 2009 — 2:00 am

Trendline is a line on the chart that shows the general direction the currency pairs, stock or any other security is trending. Trendlines are one of the most basic technical indicators. If the currency pair or the stock is moving up in price, the trendline is going to slope upwards. And if the currency pair or the stock is moving down in price the trendline is going to slope downward from left to right.

Drawing Trendlines

Drawing trendlines seems to be easy and straight forward but can be tricky. So depending on how you think the currency pair or the stock is behaving, you draw a line of support in the bullish case and a line of resistance in the bearish case.

How to draw a trendline? Take a print out of the chart and draw a line with a ruler that connects two or more low points if the prices are steadily moving up or two or more high priced points if the prices are steadily moving down.

Now this should not fool you in thinking that trendlines are simple to draw. Drawing of a line connecting different points is such a subjective matter that it is difficult to consider trendlines as technical indicators. If you ask two different traders to draw a trendline on the same chart, both may draw two completely different lines. If one of the traders happens to be biased against a currency pair or stock, she may try to find a downtrend on the chart.

Despite all this inherent subjectively in drawing trendlines, most traders heavily depend on the trendline in making the buy or sell decision. So although different trendlines drawn on the same chart may appear to be different but all will have almost the same direction and almost the same slope!

Now a trendline can slope up in such a case it will be called a Bullish Trendlines. It can slope down in such a case it will be called a Bearish Trendline or it can be almost horizontal in such a case the market is choppy and moving sideways. Taking the trendline direction into consideration helps you determine the status of the market whether it is bullish or bearish.

Automated Trendlines

Good news! You can take some of the subjectivity in drawing the trendlines by using a software package that does the drawing for you. Just choose your preferred timeframe and the software will draw the trendline for you. However, using the software removes the subjectivity to a degree but cannot do so completely. There will still be some subjective component to a software drawn trendlines.

You as a user select the timeframe for the trendline that can impact on the trendline drawn by the software. So just like any computer program, what you get is what you input into the software as a data. Microsoft Excel can also draw a trendline so you can practice with that to begin with. Learn to draw trendlines correctly!

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Commodities, Day Trading, Forex, Position Trading, Stocks, Swing Trading

drawing trendlines, how to draw trendlines, trendlines

Hassam

Moving Averages

— 1:34 am

Moving averages are one of the most basic yet the most widely used technical indicators. So what is a moving average? Put simply a moving average is the average of the closing price of the stock, the currency pair or any other security calculated over a certain period of time. Moving averages help you determine the trend.

There are a number of moving averages that you can use. However, you should know that the selection of the timeframe you use when you calculate the moving averages is very important. Timeframe of the moving average depends on the number of closing prices that you want to include in the calculating the moving average.

Suppose your trade lasts only for a day or two or even less than a day, in such a case a 5 day time frame though very short term is appropriate. On the other extreme, if you are a long term trader and are in the trade for months than you might use a 200 day moving average. So pick a time frame that is appropriate to the amount of time that you intend to have the trade on.

Simple Moving Averages

The most basic type of moving average is the simple moving average. It is very easy to calculate and is the most common of the moving average used by the traders. So if you want to calculate the 5 day moving average just add the 5 closing prices of the stock or currency pair for the last 5 days and divide it by 5 to take the average.

Always remember the longer you timeframe for the trade, the longer the moving average that you need. Now the two other variations to the simple moving average is the Weighted Moving Average and the Exponential Moving Average.

Why would a trader want to calculate more complex moving averages? The major advantage of using these complex moving averages is that they tend to show the change in the trend more quickly than the simple moving average. Detecting trend changes fast can help you make more profitable trades.

As a trader, you know that most recent price action is more important than distant price action. A simple moving average gives equal importance to all prices. In order to overcome this shortfall, weighted and exponential moving averages have been calculated that give more weight to the recent price action.

Weighted Moving Averages

A weighted moving average is calculated by multiplying the most recent price with the number of prices in your time frame adding it to the second most recent price multiplied to the total number of prices in the timeframe minus one and so on till you reach the oldest price in the list then divide the total sum by the total number of prices in the timeframe. Sounds complicated huh?

Exponential Moving Averages

Exponential moving averages give a lot of emphasis on the recent price action as compared to the weighted moving averages. Exponential moving average is even more complicated but you don’t need to calculate these moving averages, the charting package can do it for you. Just select the time frame!

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Commodities, Day Trading, Forex, Futures, Position Trading, Stocks, Swing Trading

exponential moving average, moving average, moving averages, simple moving average, weighted moving average

Hassam

MarketClub Trading Videos

November 4, 2009 — 9:37 am

Crude oil recently fell through an upward trendline, corroborated by the MACD. A quick Fibonacci study shows where this market may be heading in the near term. This 4-minute video will provide details and show how easy it is to use these technical indicators within MarketClub. Did you know?… You can use MarketClub to establish direction and timing in the crude oil market but then trade options or option spreads instead of the futures contract. The initial margin on a crude oil futures contract is expensive (over $7,000 as of Sep 28) whereas an option spread can be established for $500. Its revolutionary Trade Triangle technology generates clear buy and sell signals for practically any market. MarketClub has over 30,000 members. Upon viewing the video, you’ll have access to historical videos and detailed product information and will be able to take a 30-day risk free trial of MarketClub.

Gold trading can be as profitable as forex trading. Technical analysis is almost the same and if you have been trading forex than you should know that gold trading will not be much difficult for you. If you have been following the gold market than you must know that gold recently broke the historical barrier of $1000 per ounce. Gold market has been in a secular uptrend for the last few years. This video is very informative. Read what Norman Hallett from The Disciplined Trader Intensive Program says: “Most of my subscribers are aware that I trade many markets, but my first love is the futures markets. It’s where I got my start and made my reputation…not only with the ability to stay cool and calm and take advantage of volatility (the reason I’ve made training other traders how to be disiplined), but in my market views.

I’ve learned to look at “related markets” when considering a specific market play. In the case of Gold, I look at the CRB Index,and the US Dollar. Right now, both are in supportive positions for gold, which is what I want to see for getting into a long position in gold. Adam Hewison, just sent me a video analysis of gold where he sees gold as “decoupling” and acting on its own. I think it still has the support of “related markets”, not to say it doesn’t look good, because it does! See what you think.”

Watch the MarketClub Gold Trading Video!

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Commodities, Day Trading, Forex, Gold Trading, Options, Stocks, Swing Trading

marketclub, marketclub trading videos, marketclub videos

Hassam

Turtle Trading Rules

November 2, 2009 — 9:38 pm

What do all three of these guys have in common? Guys like Bruce Kovner, a former NYC Cab driver who turned $3000 he borrowed off his credit card into a multibillon dollar fortune trading forex or Richard Dennis, who started trading with $300, and turned it into a mind bending $150 million+ or a guy like John Henry. He’s a former Arkansas Soybean and cotton trader who now owns the Boston Red Sox and a NASCAR team.

Let me begin by first asking you a question: What do you think are great traders born or made? The answer to this question will determine whether you can make a fortune in trading or not. The very same question bugged Richard Dennis whether great traders are born or made.

In mid-1983 Richard Dennis, a famous commodities trader was having an ongoing dispute with his long time friend and trading partner Bill Eckhart whether great traders were born or made. Richard believed that he could teach people to become great traders. Bill thought that aptitude and genetics were the determining factors.

So in order to settle this ongoing feud between two great friends and great traders, Richard suggested that they recruit some traders, train them, give them actual amounts to trade to see which one of them was correct.

So a large ad advertising positions for the trading apprentices was placed in the Barron’s, the Wall Street Journal and the New York Times. Now Rich was the most famous trader in the world at that time. So more than 1000 applicants submitted their applications! From these, Rich interviewed 80.

Finally 10 were selected. Later on it became 13 when Rich added three more people he already knew to the list. These people were trained for two weeks and began trading after that. After proving themselves, Dennis funded most of them with $500,000 to $2,000,000 accounts.

Rules You Won’t Follow Don’t Matter

The students became famous as Turtles. The Turtles became the most famous experiment in trading history. As a famous trader and the father of Turtles, Richard Dennis said: “I always say that you could publish my trading rules in the newspaper and no one would follow them. The key is consistency and discipline. Almost anyone can make up the list of rules that are 80% as good as what we taught our people. What they couldn’t do is give them the confidence to stick to those rules when things are going bad.”

Rules that you can or won’t follow will not do you any good. The Turtles had a lot of reasons to be confident of the rules they were given. Turtles had the confidence to follow those rules even during losing periods. Those who didn’t consistently follow the rules didn’t infact make any money and were dropped from the program.

Rules are important in life. More so in trading! Traders who want to be successful should figure out a way to gain enough confidence in their own rules of trading to be able to apply them consistently. Turtle trading experiment can teach you a lot about the importance of having a rule based trading system! You can download your Turtle Trading Rules (37 page pdf). These are the orginal Turtle Trading System Rules as taught by Richard Dennis! Turtle Trading Rules themselves were simple-the secret was the ability to stick to these rules. Emotions are your biggest enemy in trading. Rules help you avoid emotions. Turtle Trading System was a mechanical trading system per excellence that was rule based and almost eliminated emotions in making trading decisions if you had the discipline to follow the rules under all market conditions.

Turtlerules turtlerules.pdf

Date:	November 2, 2009

270.6 KiB 447 Downloads Details...

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Commodities, Day Trading, Futures, Position Trading, Swing Trading

turtle rules, turtle traders, turtle trading, turtle trading experiment, turtle trading rules

Hassam

Triple Witching Hour In New York Stock Exchange

October 31, 2009 — 11:36 pm

Stock indexes are considered to be a barometer of the market sentiment. S&P 500 Stock Index is considered to the most important barometer of the US economy. Similarly Dow Jones Industrial Average (DJIA) is synonymous with the New York Stock Exchange. When the Dow is up, the New York market is considered to be bullish and when the Dow loses points, the market sentiment turns bearish. When a trader or for that matter an investor is asked how is the market sentiment. She might reply that the market is up by 70 point which indicates a bullish sentiment in the market. Now these 70 points are meaningless without reference to the specific stock index that she is talking. The greatest financial innovation of the last quarter century is the introduction of stock index futures also known as index futures. There over 70 index futures contract those are traded in different stock exchanges around the world.

Now these index futures are intimately interconnected with the stock indexes on which they are based. Many day traders only trade index futures like the E-Mini S&P futures or the E-Mini Dow Futures. However, many investors only invest in stocks and may have no experience of trading index futures. If you have been investing in stocks and if you are interested in knowing the short term stock market movements in the NYSE than you should learn something about the index futures and how they are traded. Program trading and Index Arbitrage are two activities that can make the stock market highly volatile in the short term.

One of the most popular trading strategies used by professional traders is the index arbitrage. It involves the simultaneous buying or selling of the underlying stocks and the index futures contracts. You must know that the index futures contracts play strange games with the stock prices on the days when these contracts expire. Index futures contracts expire on the third Friday of the last month of each quarter that is March, June, September and December. Index options and options on individual stocks settle on the third Friday of each month instead of the last month of each quarter in case of Index Futures contracts.

The third Friday of the last month of each quarter is day you must always keep in the back of your mind while trading as it always have unusual volatility on that date. You must have by now understood that on the third Friday of the last month of each quarter that is on the third Friday of March, June, September and December, these entire contract expire at the same time. This simultaneous expiration of these contracts produces volatility in the markets on that day. That is why these days are known as Triple Witching Hour.

Index options contracts and options contracts on individual stocks expire on the third Friday of each month. The third Friday of each month when there is no futures contract settlement is known as Double Witching Hour and it produces less volatility as compared to the Triple Witching Hour. So what’s the mystery behind these double or triple witching dates that produces so much volatility in the markets?

Now you must know that the institutional investors like the pension funds, the mutual funds, the hedge funds, big banks and corporations are the major players in the markets. It they who actually determine the market sentiment! On these dates the market makers in NASDAQ and the specialists in the NYSE are instructed to buy or sell large blocks of stocks no matter what the price because institutional investors are closing out their arbitrage positions. Program trading can involve buying or selling of millions of shares with just one click on the trading software. This brings a lot of volatility in the market.

As a retail trader you are at the mercy of these big players in the market. So if there are huge buy orders, prices will soar on that date and if there are huge sell order, the prices will fall on that date. However these price swings do not matter to the arbitrageurs because the profits on the futures positions will offset the stock positions and so on.

Program trading and Portfolio insurance were the major causes of the market crash of October 1987. So in 1988 on the urging of NYSE, Chicago Mercantile Exchange (CME) changed it procedures and stopped futures trading at the close of the Thursday’s trading and started settling the contracts on the Friday opening prices rather than at Friday’s closing prices. These changes have now greatly moderated the triple witching day’s volatility. However, you should still expect some volatility on these days! Know a Stock Index Futures Secret that can make you rich.

0 response

Day Trading, Futures, Options, Stocks, Swing Trading

double witching day, double witching hour, triple witching day, triple witching hour

Hassam

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