Navigating Through A No Bid Market

If you're a market player or observer as I am and focus on trading each day, you probably notice when there is a strong bid in the market.  It's the days when volatility is weak and falling all session long, the SPX futures are strong and race higher out of the gate and we often see buyers take the market to their highest finish of the day right at the end of the days trade.  

 

Our trading often becomes easier when the conditions are as described above.  We can shed poor trades, raise cash, sell big winners and add new plays to our portfolios.  But these conditions are not consistent and if we were to rely on a strong bid each day then we would put ourselves in harm's way. 

 

There are 'no bid' days out there, and we are all too familiar with those conditions.  When the markets are flat to lower in the early going only to take the path to lower levels all session long.  Trying to sell something is extremely difficult, and while we like to buy dips and sell the rips, who knows if this one dip will be the last one.  With markets highs any excuse could be made to do some selling.

 

With the prevalence of 'algo' traders, high frequency trading programs and a large contingent of retail traders there is a swarm of buyers and sellers out there.  It's no longer just the big hedge funds, banks, mutual funds, pensions and trusts that push prices around, but they are still influential.

 

What should you do in a 'no bid' situation?  Well, you certainly need to slow down, wait, watch and observe.  It may just be one day of selling or 'no buying' that clears over the coming days.  Market makers are not in the business for you to make money all the time, and they will often 'run' stop losses to create more volume and activity.  They can do this as they see opportunity with a no bid day.

 

I will often sit and wait for the opportunities to arise once again on the bull side.  However, those days may not happen quick enough for me so I'll have to raise cash, add protective puts to lessen the volatility of my holdings.  It's not a fun day to be against the market tide, but those days are not fatal if you don't make tactical errors - like panic and selling everything.  As always, the charts/technicals will guide you through a storm.