1.
Trading After Dramatic Re-pricing of a Market
http://www.netpicks.com/trading-dramatic-repricing-market/

2.
When there's a dramatic repricing of a
market, such as the one recently seen
in Crude Oil, there's a period of
instability in the market that can be
very costly if you fail to take it into
account.

3.
The old trading adage that "the market
takes the stairs up and the elevator
down" really applies here. Dramatic
repricings tend to happen whereby
markets sell off hard and fast, so
there's an element of bargain hunting
that inevitably goes on.

4.
People are looking to take advantage
of oversold prices, but there's always
the selling momentum that motivates
more selling as well.

5.
Big firms in trouble can and do have to
scramble for the exits and this can
exacerbate the moves lower whilst the
hunger for bargain basement prices
intensifies as a market threatens to
retrace.

6.
Opportunist day traders hang on every
bit of news, every comment that might
be relevant and every rumor in the
hopes of catching a piece of the
action. Ranges become larger and risk
becomes greater.

7.
Over the financial crisis of `08/9 this
happened across a broad range of
markets. This is what it looked like in
the E-mini S&P500: -

8.
Firms who get into trouble, bargain
hunters, opportunist traders and
probably many other categories of
participant motivated by the huge shift
in prices, serve to increase volatility.

9.
The fact that there's more business
that needs to be done, that it's done
more aggressively and it's done in
often much thinner markets
exacerbates moves to both sides.

10.
Thinner markets occur as a result of
volatility. An orderbook that once
might have been full of bids and offers
becomes much thinner.
This is for several reasons.

11.
Ultra short-term algos tend to get
switched off and they usually make up
a large number of orders queuing in
the market at any one time.

12.
Traders can adjust their usual position
size to take account of the extra
movement and normalize their risk.
Traders are less willing to "show their
hand" by queuing for prices.

13.
A clear-out of the orderbook in this
way can help the order-flow to
improve but does change the
magnitude of movement. Average
ranges and additionally, the number of
tradable moves will increase.

14.
Taking a closer look at the stats, it's
easy to see the differences that it
makes. For example, in Crude Oil, the
20 day ATR in June last year was at
1.07 per day compared to its current
value of 2.89. That's an increase of
over 150%!

15.
But what's more valuable to most of
us as short-term traders is the fact that
this drips down into smaller
timeframes

16.
The 20 day average range for each
30min candlestick is displayed on the
next chart.

17.
I've added lines for the daily
peaks/troughs for both today and as a
comparison, for before the sell-off in
Crude Oil.

18.
You can clearly see in this chart that
the 30min average ranges have
increased by a similar factor to what
they have on a daily chart.

19.
The point of demonstrating to what
degree the level of movement has
changed, is to help you avoid making
the mistake of thinking a move that
might have been big before the
repricing, has some sort of wider
significance in the market's current
heightened state.

20.
You shouldn't expect that a move in
crude that would've been big 6 or so
months ago means anything in
particular right now. The participants
that I've already mentioned above are
probably active and markets can move
what seems like a great deal for no
particular underlying reason.

21.
But the fear of missing out on a great
move generated by news or the like
can easily have you reading something
into movement that shouldn't be.

22.
Knowing what the normal movement
is for any market that you trade is
vitally important in order that you
have a frame of reference for what the
market is doing and which types of
player might be active. But studying
market movement isn't just a one-time
thing either-

23.
markets are organic and as such, their
movement and behavior undulates
based on the current conditions and
driving forces. When there's a
dramatic repricing of a market, what
constitutes "normal" can at least
temporarily change fairly dramatically.

24.
Just because you see more winning trades than losers does NOT mean you're coming
out ahead. In fact, you *could* be teetering dangerously close to the edge...
and one losing trade could mean total wipeout!
http://www.highvelocitymarketmaster.com/capitalgrowth/