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2004issue C111-2

Wait-rule collapse in a mistaken sale cascade

A 1 September 2004 session planned a short from a downward 50-day moving-average-bias, then dropped a wait-rule on a volume-marked-selloff later traced to an erroneous-order-cascade. Editorial reading: that skip belongs in one testable entry, exit, and abstention procedure.

  • On the recorded session the daily downward 50-day average was a moving-average-bias, so the contemplated trade was planned as a short.
  • The wait-rule of about another hour before the first order was dropped when arousal rose with a volume-marked-selloff.
  • The selloff was later traced to an erroneous-order-cascade that lasted only a few minutes, and the account says a confirmation-bar might have made the same early fill unavailable.
  • Editorial reading: write crowd-follow, the wait-rule, and any skip of that wait as one testable entry, exit, and abstention procedure.
Entries in this reading3 entries
Current trackVolume-price analysis207 readingsTrading psychology process376 readingsMoving average597 readings

A moving-average-bias planned the short

On 1 September 2004 a daily S&P 500 chart showed the index hovering on a downward-sloping 50-day moving average. In that state the average was a moving-average-bias: a side filter while price still hovered around it and the next break was unresolved. Any trade contemplated from that setup was planned as a short.

A volume-marked-selloff dropped the wait-rule

At 10:05 a.m. Pacific time a five-minute e-mini chart printed a volume-marked-selloff, a sudden price drop identified by a coincident surge in volume.

The wait-rule in that account was a precommitted delay of about another hour before the first order of the session, meant to keep arousal from forcing an immediate fill. That delay was dropped when arousal rose with the first impulse.

Recorded fills and an erroneous-order-cascade

The recorded short entry was 1105.00 and the recorded exit was 1102.25. The pre-stated objective for that contract was two points.

The selloff was later traced to an erroneous-order-cascade: a large unintended Russell 2000 sale that other participants copied until the error was recognized. After that recognition, the affected markets resumed their prior direction. The whole sequence lasted only a few minutes.

A confirmation-bar and crowd-follow

The account states that waiting for the second five-minute bar, used here as a confirmation-bar after the first impulse, might have made the same early fill unavailable because of that speed.

The process lesson offered is crowd-follow: participate in an abrupt group reversal rather than trying to enter and exit at peaks and troughs.

Editorial reading: one testable procedure

Editorial reading: keep entry, exit, and abstention as one procedure. The downward 50-day average remains only a moving-average-bias. A volume-marked-selloff that invites crowd-follow does not skip the wait-rule unless that skip is written as an explicit, testable rule.

Editorial reading: if the skip is not written, the planned wait is the abstention rule, even when a minutes-long erroneous-order-cascade makes a later confirmation-bar unavailable.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
9 of 19 in the Volume-price analysis track
20051-1 pp.Next on Volume-price analysisConstructing a volume and change weighted moving averageA simple moving average is presented as a noise filter that reports where an ordered series has already been.
All readings on this track · 19 readings
  1. 1989T-bond volume-price boxes and a withheld rectangle top
  2. 1990Constructing ease of movement from volume-scaled boxes
  3. 1990Weekly four-stage mapping with average, range, and volume
  4. 1996Constructing volume-confirmed average-cross entries
  5. 1996Constructing four MFI bar states from range and volume
  6. 2001Building in-gear volume-price overlays
  7. 2004Constructing index volume for price-volume signals
  8. 2004Auditing volume-on-retest rules for prior highs and lows
  9. 2004Wait-rule collapse in a mistaken sale cascade
  10. 2005Constructing a volume and change weighted moving average
  11. 2005Daily average support and Friday volume holds
  12. 2007Match a volume-price oscillator to a range, not to a policy rebound
  13. 2008Volume confirms chart pattern breakouts
  14. 2011Color-coded volume bars for rule-based swing entries
  15. 2012Go or no-go checklist at repeated resistance
  16. 2012Pocket-pivot volume rules before a later breakout
  17. 2014Constructing defended price lines from volume spikes
  18. 2016Closing score from range location as a volume-checked sentiment filter
  19. 2019Volume follows price as auction state
By fieldDecision process416 readingsBy year2004180 readings
All 207 readings tagged Volume-price analysis
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