How many days locked limit up/down?

[benwm]

In the book Market Wizards I recall some of the traders talking about markets moving lock limit up or down for days on end during the inflationary 1970s-80s. Perhaps it was Richard Dennis or one of the trend followers, I can't recall exactly...

Last month wheat had its biggest monthly gain since 1973, up something like 30%. Today Sep-10 Wheat closed limit up +60 at 785.75. I wondered how common it is for there to be a series of consecutive limit up/down days. We all know about fat tails, and that suggests the likelihood is higher than most would first think. Maybe we haven't seen such a phenomenon during the Greenspan/Bernanke pump priming years but that doesn't mean it hasn't happened before and won't happen again.

It would be interesting to hear tales from ET posters who have seen such consecutive limit days, but I'm guessing there aren't many from the 1970-80s who still trade. Any war stories?

I have a theory that this could happen in some commodities, perhaps over the next two to three years, maybe earlier. And this would create some fireworks in other markets...can you imagine how fast central banks would have to react to keep down cost-push inflation?

Perhaps 10yr JGBs yielding 1.04% are not so attractive after all....

 

[filter_sweep]

I don't trade wheat but I remember back in 07 and 08 there were multi-day stretches where wheat was locked limit up. I have a memory that someone here on ET got burned pretty bad by it, but I might be remembering incorrectly. If you looked back at some old posts from that timeframe you might find some war stories.

I was trading Taiwan at the time and there were many days that winter where we would hit intra-day circut breakers and we'd be locked limit up or down, but only for 15 minutes at a time and then it would re-open and allow the market to run a little farther before locking up again. I only got caught on the wrong side of that action once, and it was an nasty feeling being short looking at the DOM and seeing nothing but bids, no offers to cover on, wondering where price would re-open after the cool-down period terminated. After that I pre-calculated the circuit breaker levels before each trading session to make sure I was always out before we hit that level.

 

[nazzdack]

Quote from benwm:
----markets moving lock limit up or down for days on end....
----how common it is for there to be a series of consecutive limit up/down days.

Very seldom. Maybe two of the most extreme examples were soybeans in the Summer of 1973, from looking at the charts, and Lumber during 1993, which I experienced first-hand. There was a streak in the deferred months of lumber where they were locked limit-up for atleast ten consecutive days. :eek:

 

[lachie74]

Quote from filter_sweep:

I don't trade wheat but I remember back in 07 and 08 there were multi-day stretches where wheat was locked limit up. I have a memory that someone here on ET got burned pretty bad by it, but I might be remembering incorrectly. If you looked back at some old posts from that timeframe you might find some war stories.

That was me unfortunately.. Took an absolute kicking. I was stuck in a short when it went limit up 60c then the next session opened and it went straight to the next limit up 90c above.

It hurt, but I'm still here and much more cautious.

I'll never take a directional position in a soft commodity again, spread trading only.

 

[TraDaToR]

Minneapolis Wheat in 2008. Don't remember how many days though.

 

[benwm]

Quote from nazzdack:

Very seldom. Maybe two of the most extreme examples were soybeans in the Summer of 1973, from looking at the charts, and Lumber during 1993, which I experienced first-hand. There was a streak in the deferred months of lumber where they were locked limit-up for atleast ten consecutive days. :eek:

Wow, great replies we really have some seasoned pros amongst the ET ranks. Thanks everyone.

Moi? I was trading JGBs in 1998 and caught short on a 200 tick limit up open but did better on some other big moves in 1998 & 2003 eg. yields going from 0.60% to 2% in a couple of weeks etc. but the commodities are a new game for me.

I made my first long foray into Palladium last year at 210 and one hour later price had dropped to 182 which was a tough pill, I wasn't expecting that! Somehow managed to escape at a slightly better 196 the next day and lick my wounds. So I'm quite wary of commodities.

nazzdack - You must have learned so much from this experience in lumber. Could you divulge a few more details please? Was it a move out of the blue, tight range, what sort of warning signs did you get before hand? Did you keep records of what happened, it would be an interesting story to share?

 

[nazzdack]

Quote from benwm:
----Palladium.......
----I'm quite wary of commodities.
----learned so much....more details....warning signs.....

1) Avoid "illiquid" commodities. Lumber qualifies as one.
2) You should treat commodities the same way you trade anything else.
3) With lumber, it was making new highs day after day, the market was inverted, bearish news was shrugged off.... all of the usual things that accompany a strong bull market. When in a runaway bull market, you have to have sell-stops to get you out of positions when the market reverses. The retracements become more vicious at progressively higher price levels.

 

[Vulcan Trader]

I got caught up once on a bad crop report in soybeans back in 2001. The market opened lock limit up. That was the only time I got caught on the wrong side of a lock limit move. The other times I was always fortunate to be on the right side of the market. I was overdue for a whipping from the market.

 

[Wallace]

yes, during the week of Feb 22 - 28 1983 gold dropped from $505.80 to close limit
down on the Friday at $423.70 . on the following Monday the low went to $412.00
and the limits down trend was broken
what exacerbated the situation was that month's contract expired during the limit
downs; it took the exchange a full month to clear all the paperwork
a profitable trade

 

[benwm]

Quote from Wallace:

yes, during the week of Feb 22 - 28 1983 gold dropped from $505.80 to close limit
down on the Friday at $423.70 . on the following Monday the low went to $412.00
and the limits down trend was broken
what exacerbated the situation was that month's contract expired during the limit
downs; it took the exchange a full month to clear all the paperwork
a profitable trade

limit down every day during the week? Wow.
Trading commodities early 80s must have been wild with Volcker tackling inflation head on. Seem HeliBen is the polar opposite, but maybe we'll get some interesting moves a little further down the line..