Ninety Infamous Seconds Of Trade
Think of what can be done in 90 seconds; shake a Martini, toast a slice of bread, peel an orange, or wipe 990 points (9%) off the Dow Jones. On Thursday 6th May 2010 (remember the date, it will be heavily quoted) the next phase of realization of how much control is left on the hands of computer technology was revealed; and it was very ugly.
Automated trading is the reason that most have access to trade the markets, and automated trading has allowed instant fills and instant closes, thus enabling all to take their place at the trading table. The Achilles heel to trading a global market that has over 95% of all orders being contingent in a move in another market is that when it fails, it fails in dramatic fashion.
At 14:40 ET, just after the NYMEX markets had closed, a move happened that stripped 8% off most equity based asset classes, that were capable of creating chaos that has not been matched in recent memory. Within a five minute period of trade, the markets were looking at moves in forex, bonds, and stocks that had stripped out huge swaths of protective stop orders that will now take a long time to replace.
The lack of a manual circuit breaker to control the disturbance has left a market that is now looking for direction, and more importantly, a market that has gaping holes all over it in regard to protective price points that are vulnerable to further chaos, both long and short. Traders need to now reduce lot size, bank in stages, and keep an eye on the S/P futures market.
TheLFB trade desk has been educating forex traders to the fact that equity trade dominates currency movement, in general, and that thinly traded, low-volume equity moves create the probability to see heavy reversals. That was driven home on Thursday, and the forex impact was seen in a stronger dollar that moved in direct correlation to the percentage moves seen in the equity markets.
Overnight trade will be volatile as Asian markets open up, and that may set the tone for European and U.S. stocks on Friday. In the mean-time, patience is key.
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