Brexit…wast this just a bad dream? – Click here..
Market Recap for Tuesday, June 28th, 2016 Today stocks rallied. The Dow jumped over 260 points and the NASDAQ climbed more than 2%. Today’s move came after two dreadful days on Wall Street that resulted in losses of around 6%. So does this mean that the worst is over, or is this just a technical bounce? It’s probably too early to say. But the good news is that stocks ended higher and the VIX (a.k.a. the “Fear Index”) dropped over 20%. With today’s moves it seems as though traders are hoping that the UK can reverse, or at least soften the June 23rd referendum outcome in which the UK voted to leave […]
Market Recap for Monday, June 27th, 2016 And the volatility continues… Although it was a slow day for the economic calendar, post-Brexit volatility was in full effect as stocks dropped for the 2nd day in a row. Stocks were down across the board as the major indices began the day with a gap lower. Once Friday’s lows were broken, the E-Mini S&P was in a virtual free fall. But after sliding 18 points, the S&P sound support around 11am ET. Stocks then spent the rest of the session in a choppy range, trading above session lows. The S&P eventually found support around the 2000 mark, finishing the day at […]
Market Recap for Sunday, June 26th, 2016 Friday was a historic day in markets: The U.K. surprised markets by voting to leave the European Union. The move sent global markets into chaos. The S&P 500 tumbled 75 points, losing the most points since September 1, 2015. In fact, S&P 500 futures went limit-down – meaning that trading was halted – after falling 5%. After a small bounce following the market open, US stocks slid through the afternoon and ended with sharp losses that erased year-to-date gains for the S&P 500 and Dow. The Nasdaq fell over 4% on Friday, the biggest one-day drop since 2011. Here’s where the major […]
The recent Brexit trade and its volatility has given us an opportunity to explore an important and neglected topic in trading psychology: time.
Here’s a useful distinction between novice and expert performers: Under pressure, the novice feels threat and speeds up. Heart rate, galvanic skin response, muscle tension–all increase under pressure for the novice. The expert performer has trained under pressure. Under pressure, the expert slows down and focuses.
Put novices behind a rifle and the odds are good that when the target appears, they will speed their breathing, start to shake, and miss the shot. Put an expert sniper behind the rifle and breathing slows, all movement stops, and the aim is true.
As a psychologist, I’ve experienced the same thing. During my beginning years, I felt panic if a client I worked with reported thoughts and feelings of suicide. Later, crisis talk made me hyperfocused. I hung on every word. I became more deliberate in my responses, more attuned to the person I was speaking with. So it is with mountain climbers, professional athletes, and elite military units. They replace fight or flight with focus and freedom–the freedom to stay in control over a situation and not allow it to control them.
OK, so what does all this have to do with the Brexit trade?
As part of my trading, I have a short-term system that provides entry and exit execution guidance. The system adjusts entry and exit points for the market’s volatility. During Friday’s trade, the volatility unit risked by the system was about three times the size of the volatility unit from the first week of June. The same exact setup now could make or lose three times as much as recently. It was no different from tripling trading size all at once.
But it wasn’t just volatility that changed. Time itself changed! The system works from event bars, not chronological bars. Each bar represents a number of ticks in the market, not a number of minutes or hours. For all of Friday, we printed almost 200 bars. For the first Friday in June, we printed nearly 60 bars.
The novice is calibrated to the chronological clock and thinks in terms of standard trade sizing. As a result, each trade is far more risky. Under those conditions, market volatility begets emotional volatility and either the fight of reactive trading or the flight of the deer in headlights.
Calibrated to the market clock and adjusting trade sizing for volatility, the trade opportunities are the same–there are only more of them in a given trading session. A crisis session for a psychologist is an entire therapy compressed into one meeting; it is what you do all along, only compressed. That compression is a catalyst for focus, because each time unit carries greater meaning and significance.
The novice trader cannot adapt to changes in the market’s clock. Movement slows, the VIX falls to 12, and boredom sets in–the need to trade. Movement picks up, the VIX nears 30, and excitement sets in–the fight and flight. Once you define time in terms of market movement, the switch from slow markets to fast ones is like the change on a dance floor from a slow tune to a fast one. There are times for slower and faster dancing…our job is to adapt to the market’s music–not dance a given way regardless of the music that’s playing.
Further Reading: Why Trading Markets is So Difficult
Market Recap for Thursday, June 23rd, 2016 Stock ended the day sharply higher. Today the U.K. referendum started, and by the time the markets closed there weren’t any results yet. However, the final round of preliminary Brexit polls indicated that the “Remain” group held a lead over the “Leave” camp in today’s highly anticipated Brexit vote. Traders from around the world seem to like the news, and both European and US exchanges posted solid gains. Here’s where the major indices ended the day: The S&P finished with a 1.34% gain. Up 28 points, the S&P ended at 2,113. The DOW ended 1.29% higher. Gaining 230 points, the DOW closed […]
Market Recap for Wednesday, June 22nd, 2016 Today markets fell slightly as everybody anxiously await Thursday’s referendum in the UK on whether the nation will remain a member of the European Union or leave. The volatility index (VIX), a.k.a. as the “Fear Index” picked up and was trading back above the 21 level As expected, Fed Chair Janet Yellen’s testimony on monetary policy to the House was a non-event. Here’s where the major indices ended the day: The S&P finished with a 0.17% loss. Down 3 points, the S&P ended at 2,085. The DOW ended 0.27% lower. Dropping 49 points, the DOW closed at 17,8781. The NASDAQ was down […]