Avoid trading surges
Posted by Edward Dy on August 1st, 2008
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Photo Credit: Zainub
A price surge is an indicator of surprise of panic. When these events occur, professional traders take cover and observe. The retail trader also should allow the market digest such shocks. Trading during an announcement or right before, or in the midst of turmoil, will lessen the chance of effectively predicting the probable direction. Technical indicators will be distorted during surge periods.
Photo Credit: bobster1985
You should wait for a confirmation of the new direction and bear in mind that price action will have the tendency of reverting to pre-surge ranges granting that there are no fundamental occurrences.
An example is when the airplane in Queens NY crashed on Nov. 12, all currencies reacted instantly. However, within a short time the surged retraced when the panic died down.
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