Wednesday, April 15, 2009

Adapting to Range Bound Market Conditions

I've been in meetings all day with traders and, not surprisingly, the major topic that has arisen is the challenge of adapting to slower, more range bound market conditions. Between meetings I took this Market Delta snapshot of the market; it illustrates well so many of the identifying characteristics of range trade: the relatively flat VWAP (red horizontal line), the mixed volume at offer vs. bid (bottom histogram), and the bunching of volume at price (right histogram). As the Twitter posts have noted, we've also seen mixed performance among sectors, with some relatively weak (NQ, for example); others stronger (financial stocks)--as well as below average relative volume

Identifying range conditions as they're setting up is key to setting trading strategy--but it's also key to setting expectations. The slower the market, the less the movement, the more modest the expectations for any anticipated market move. More on this topic to come.