If you’re an active market player who is focused on trading for income, you definitely notice a no bid market. Selling is harder, which means making money is harder. Instead of panicking, you must be patient.
A strong bid vs no bid market
Traders love when there’s a strong bid in the market. On strong bid days, volatility is weak, SPX futures are strong and race higher out of the gate and buyers push the markets higher right up until the end of the trading day.
Trading is easier in these the conditions. You can shed poor trades, sell big winners and add new plays to your portfolio. Unfortunately, strong bid days are not consistent. If you tried to rely on a strong bid each day for growing your portfolio, you’ll be disappointed. Or worse.
On no bid days, markets start out flat or lower, and they continue to move lower all day long. Selling is extremely difficult. Even if you like to buy dips, who knows if this dip will be the last one?
The prevalence of “algo” traders, high frequency trading programs and retail traders means there’s always a swarm of buyers and sellers out there. It’s no longer just the big hedge funds, banks, mutual funds, pensions and trusts that make markets and push prices around.
How to navigate a no bid day
Slow down your trading on a no bid day. Wait, and watch the action. Perhaps it’s just one day of all selling and no buying. Market makers are not in business to help you make money all the time. They will often run stop losses to create more volume and activity. They can do this anytime they see an opportunity with a no bid day.
On no bid days, I will often sit and wait for bullish opportunities to arise once again. When a no bid day turns into several, I need to do something. I’ll sell some plays to raise cash and add protective puts to lessen the volatility of my holdings.
The worst thing you can do is panic and start selling everything. It’s the surest way to decimate your portfolio. As always, follow the charts and technicals. They will guide you through a no bid market.
