Circuit Breaker Halts

Circuit Breaker Halts

As a full-time day trader, it’s inevitable that you will get caught in circuit breaker halts from time to time. That means it’s important to understand why halts happen, what causes them, and how to deal with them.

Any stock in the market can get halted at any time. The two most common reasons a stock will be halted is Pending News, or for a Volatility Pause.  When a stock is halted it cannot be traded by anyone. The risk with halts is that when the stock reopens, it can reopen at any price. There really isn’t much you can do if you get stuck in a halt except wait until trading resume.  A halt pending news can last hours or even longer, while Volatility Pauses are usually 5min, but can be as long as 10min.

Halted on a Volatility Pause

A halt on a Volatility Pause is one of the most common types of circuit breaker halts in the market. If a stock moves up or down too quickly within a 5min period it can cause an automatic circuit breaker halt that will pause trading for 5min.  This helps smooth volatility in the market and prevent flash crashes.  It forces traders to take a 5min time out, research the stock, news, etc. Often times if a stock is spiking up and is halted, it will reopen higher.  Inversely, a stock selling off will often open lower. I have seen examples where a stock spikes up 10% in 2min and gets halted for 5min, reopens and immediately spikes another 10% and gets halted a 2nd time for 5min, reopens and spikes another 10% and gets halted for 5min a third time, reopens, sells off 10%, and gets halted going back down. This type of extreme volatility is typically the result of breaking news such as FDA announcements, earnings leak, buyout offers, activist investor stakes (Bill Ackman, Carl Icahn, research reports (Citron Research, Muddy Waters Research), etc. At it’s core, the type of volatility that causes circuit breakers is what all day traders are looking for because it presents a huge amount of potential. The question is whether you have the skill and expertise to profit from these opportunities.

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Author: Travis Esquivel

Travis Esquivel is an engineer, passionate soccer player and full-time dad. He enjoys writing about innovation and technology from time to time.

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