📊Mysterious case of the Missing candle
Time for a Thread 🧵
In the past few weeks, many screenshots of the FREAK TRADES are doing rounds on the social media.
Lets understand what causes freak trades and how to dodge them!
Time for a Thread 🧵
In the past few weeks, many screenshots of the FREAK TRADES are doing rounds on the social media.
Lets understand what causes freak trades and how to dodge them!
What is a Freak Trade: 👹
• Freak trade is a trade where the price of the underlying is being traded at a significantly abnormal price for a brief period usually micro seconds & thereafter the underlying again starts trading back to its normal levels
• Freak trade is a trade where the price of the underlying is being traded at a significantly abnormal price for a brief period usually micro seconds & thereafter the underlying again starts trading back to its normal levels
Example of freak trades:
• On Sep 7, 2021, BNF 36000 PE Sep 9, shot up suddenly to ₹750
• The option finally closed at ₹53.65.The option’s day low was 35.25.
• The underlying Bank Nifty Index opened at 36,559, hit a high of 36,686 and low of 36,152 before closing at 36,469
• On Sep 7, 2021, BNF 36000 PE Sep 9, shot up suddenly to ₹750
• The option finally closed at ₹53.65.The option’s day low was 35.25.
• The underlying Bank Nifty Index opened at 36,559, hit a high of 36,686 and low of 36,152 before closing at 36,469
Few Recent examples:
Why such freak trades high does get recorded in the charts at few instances?
• Remember freak trades takes place in micro seconds
• The reversal to normal happens within a few seconds
• Hence it may or may not get captured on the charts 📊
• Remember freak trades takes place in micro seconds
• The reversal to normal happens within a few seconds
• Hence it may or may not get captured on the charts 📊
What is TER & how it works?
• Under trade execution range (TER), whenever the actual price is outside the trade execution range, no trade can be executed until the exchange increases the execution range manually
• Under trade execution range (TER), whenever the actual price is outside the trade execution range, no trade can be executed until the exchange increases the execution range manually
• NSE found it challenging to have a dynamic execution range so no trade could be executed unless the exchange increases the execution range manually
Why Freak trades are a regular phenomenon now?
• The exchange scrapped the TER in mid-August 2021
• NSE decided to follow other global exchanges & removed the restrictions
• To allow demand and supply to determine the price at which a trade gets executed
• The exchange scrapped the TER in mid-August 2021
• NSE decided to follow other global exchanges & removed the restrictions
• To allow demand and supply to determine the price at which a trade gets executed
• Leading to sudden rises and falls in prices triggering the stop loss market orders set by Traders
Who are benefited?
• Large whales who place orders in automated manner
• HFT (high frequency traders) usually institutional firms which are into algo trading
• Large whales who place orders in automated manner
• HFT (high frequency traders) usually institutional firms which are into algo trading
What are the possible solutions?
• Entry using limit orders instead of market
• For exits, avoid placing Stop Loss Market (SL-M) orders
• Better to opt for Stop Loss Limit (SL-L) orders
• SL-L order if triggered wont have high impact cost due to freak trades the way SL-M has
• Entry using limit orders instead of market
• For exits, avoid placing Stop Loss Market (SL-M) orders
• Better to opt for Stop Loss Limit (SL-L) orders
• SL-L order if triggered wont have high impact cost due to freak trades the way SL-M has
• If you opt for spreads (proper spread and not for leverage) then SL is not required
Final take, stay safe and dnt fall prey to such whales 🐋by opting for any of the solutions mentioned above
Hope you enjoyed reading this thread! 🤠
Will be posting more such curiosity-inducing threads 🧵
Will be posting more such curiosity-inducing threads 🧵
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