Hi all, i d just like to say,how thankful i am for this website since it has helped me alot to be a better trader,but i have a question from this website :
“During the blowout stage of the market, either up or down, the risk managers are usually issuing margin call position liquidation orders. They don’t generally check the screen to see what’s overbought or oversold; they just keep issuing liquidation orders. Make sure you stay out of their way.”
the above statement is the fifth tip on the list,i’m wondering what it means,or what is exactly happening and what is being advised to avoid.
LOL! I know exactly what list he’s talking about. It’s a must read, and should be a mantra for beginning traders.
He ain’t sellin’ nuffin.
Jahmens, that entire set of rules deals mostly with equities, and the pitfalls that occur while trading them.
Forex is a far more liquid market, and to a point the same set of rules don’t apply. The rule basically means don’t get caught counter trend. In equities, it’s tough to be selling when the market is going down, usually because no one is buying. They need a counterparty to the trade. When the big guns are unloading, there are no takers, causing price to drop dramatically.
We actually saw a great example of that on the Dow two weeks ago with that thousand point drop. Sell orders on black boxes getting tripped, causing more sell orders on black boxes getting tripped caused an unprecedented slide until black boxes getting tripped to buy set in. Then up it went, almost with as much fervor.
Seeing that happen, and having the wherewithal to stay out of the fast lane is a good rule;)
I’m not sure of the licensing, so I won’t post the entire pdf, but here’s that rule from what I see as the original author George Slezak. It’s rule 12 on this list. Here’s a link to the google page for the link.
In the “blowout” stage of the market, up or down, risk
managers are issuing margin call position liquidation orders. They
don’t check the screen for over bought or over sold, they just keep
issuing liquidation orders. Don’t stand in front of a runaway freight
train.
This doesn’t happen often, but it does happen. It’s the kind of situation that just takes your breath
away. It goes and goes and goes some more. If your lucky enough to have a position with the
market, trail your stop at a comfortable level and exit MOC. If your right this kind of market, it
was just luck. Don’t think you can plan it again.
If your wrong this kind of market, remember you should place your stop based on when and
where you entered the trade. Just because it seems out of control is not a reason to let a loss go
further. Get out. Re-Read 2 above.
When a market like this is happening, I’ll often get calls from customers saying they want to just
get on and go for the ride. I’ll ask, did you plan this? Is it part of your trading strategy, where are
you going to place your stop? How will you feel if you stop is filled 2 or 3 points worse? The
market is in chaos. It is not following any rules. Would you bet, say $3,000 per contract, on a
toss of a coin? And if you win, will you ever be able to follow your day trading strategy again?
Watch the market closely the rest of the day, and then watch tomorrow. This type of market
move is characteristic of the END of a move. When it settles down, we are likely to reverse
trend. That is what a “blowout” is, the end of the move. We don’t know where it ends.
