Circuit breakers - how to play them if needed

[LOL!]

So there are these circuit breaker things that are triggered when the stock market falls too much
Investor Bulletin: New Measures to Address Market Volatility

It seems to me that if trading halts that the market might pop when trading resumes instead of resuming the downward spiral. However, if one entered an order to buy during the halt, it would not get filled at the price that was available just before the halt.

Does it make sense to enter some good-for-the-day limit orders to buy at prices just above a trigger point, falling knife or not?

 

[donheff]

Expecting a big fall if there is no debt ceiling deal? I already liquidated some funds for a few months expenses.

 

[M Paquette]

I dunno...

Something tells me that just maybe some algorithms gooroo might have thought about this possibility, and there's a colocated server racked up a hundred nanoseconds away from the Exchange data server ready to pounce. You could just wind up holding the short end of a high frequency arbitrage.

 

[brewer12345]

I dunno...

Something tells me that just maybe some algorithms gooroo might have thought about this possibility, and there's a colocated server racked up a hundred nanoseconds away from the Exchange data server ready to pounce. You could just wind up holding the short end of a high frequency arbitrage.

Almost certainly. Don't fight the algos.

 

[LOL!]

I am unimpressed by the algos because I am one of them.

The point being that if I submit a limit order and things drop and the order gets executed, I don't actually care if the market opens the next day lower. While I would prefer for it to open higher the next day, I am prepared to accept that it doesn't.

Full disclosure: I have lived nicely through Oct 1987 and all the dust-ups since then.

 

[brewer12345]

Well, pick one: milisecond algo trader or long term oriented dirty bottom-fisher. Sounds like you are the latter (and if you want to eat fish sometimes you have to taste a little bottom, heh). If so, surely there has been some academic research done on this. See if you can find it.

 

[LOL!]

At least for the folks reading the forum this evening, they seemed to have turned conservative. That is a bad omen.

 

[Animorph]

So there are these circuit breaker things that are triggered when the stock market falls too much
Investor Bulletin: New Measures to Address Market Volatility

It seems to me that if trading halts that the market might pop when trading resumes instead of resuming the downward spiral. However, if one entered an order to buy during the halt, it would not get filled at the price that was available just before the halt.

Does it make sense to enter some good-for-the-day limit orders to buy at prices just above a trigger point, falling knife or not?

Seems like if the price is going to continue down you just bought. If the price is going to go up it would likely gap over you without giving you a trade. Worst of either case since you could have bought for a better price when trading resumed.

 

[brewer12345]

At least for the folks reading the forum this evening, they seemed to have turned conservative. That is a bad omen.

Huh?

I was just trying to suggest that with all the high frequency trading nonsense now permitted (inexplicably) by the authorities it is very difficult to make trading profits. Now if you are talking about a long term/value oriented buy signal, you may have an opportunity. But I guess I don't see how buying when the circuit breakers trip is any different than buying in the face of a big selloff.

 

[LOL!]

Let's try this again.

Suppose market is at 1000. We know market will be closed if it trades at 800. Submit limit order to buy at 801. Yes, on the way to a Level 3 trading halt for the day, the Level 1 and 2 trading halts will stop trading, but not for the rest of the day.

So some points:
(a) If no limit order submitted, I think there would be little chance of buying at 20% off. If you remember 1987, one could not get through to one's broker by phone nor internet that day. Fidelity's phone lines were totally swamped. Thus one would have to submit the limit order even the night before to have a chance of it being executed. Maybe this is the reference to high frequency trading. I don't care if a HFT program buys from someone else faster than me and then sells to me.

(b) The limit price of 20% off is such that trading will halt for the day if it drops much below that. Just imagine what the news will be! References to 1987! Déjà vu! Something will happen after the market halt to make stocks go up again at least temporarily. Politicians will say, "We will do something." Just that will cause the market to pop or gap-up on opening the next trading day. Anyone with pending orders to sell (lower) would be smart to cancel them when the market it closed.

(c) It doesn't matter if things tank even more as they will eventually recover.

(d) If the market doesn't drop 20%, then the limit order will not be executed and the trading will not halt for the day. One is still free to submit other orders.

(e) I don't see how HFT has anything to do with this. Sure, an HF trading algorithm could be selling to me, but so what, since I won't pay more than my limit price anyways.

 

[Lsbcal]

...(snip)...
(c) It doesn't matter if things tank even more as they will eventually recover.
....

I'm not sure you meant this comment using a substantial part of your money and maybe you have lots of it coming in from work? If you are "playing" with a low percentage then my comments don't apply.

I've plotted the 1929, 1987 and 2008 declines against each other by aligning the peaks. They follow similar paths down until diverging some months out. The takeaway is that there was no upturn in the 1929 one until quite a bad ride down plus people were losing their "safe" jobs back then.

I might have posted that plot before but if you want to see it I'll post it.