{"id":219557,"date":"2025-03-06T12:45:00","date_gmt":"2025-03-06T17:45:00","guid":{"rendered":"https:\/\/ibkrcampus.com\/campus\/?p=219557"},"modified":"2025-03-13T14:44:11","modified_gmt":"2025-03-13T18:44:11","slug":"dump-and-chase-works-in-hockey-not-in-markets","status":"publish","type":"post","link":"https:\/\/www.interactivebrokers.com\/campus\/traders-insight\/securities\/stocks\/dump-and-chase-works-in-hockey-not-in-markets\/","title":{"rendered":"\u201cDump and Chase\u201d Works in Hockey, Not in Markets"},"content":{"rendered":"\n<p>\u201cDump and chase\u201d is a time-tested ice hockey strategy.&nbsp; Typically, one player brings the puck forward, then sends it into a corner of the rink, hoping that one of his forwards will get possession first.&nbsp; It doesn\u2019t work all the time, but its persistence means that it is adequately successful.&nbsp; For stock traders and investors, who seem to have adopted this strategy on a daily basis, it can be woeful.<\/p>\n\n\n\n<p>The past week has been full of instances when traders dumped stocks, then chased them higher, or vice versa.&nbsp; I took the liberty of pointing out substantial intraday moves in the S&amp;P 500 over just the past week:<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-spx-1-week-5-minute-candles-arrows-arbitrarily-added-to-show-relatively-large-intraday-moves\"><strong><em>SPX, 1-Week, 5-Minute Candles (arrows arbitrarily added to show relatively large intraday moves)<\/em><\/strong><\/h3>\n\n\n\n<figure class=\"wp-block-image size-large\"><img decoding=\"async\" width=\"1100\" height=\"600\" data-src=\"https:\/\/www.interactivebrokers.com\/campus\/wp-content\/uploads\/sites\/2\/2025\/03\/image-6-1100x600.png\" alt=\"SPX, 1-Week, 5-Minute Candles (arrows arbitrarily added to show relatively large intraday moves)\" class=\"wp-image-219574 lazyload\" data-srcset=\"https:\/\/ibkrcampus.com\/campus\/wp-content\/uploads\/sites\/2\/2025\/03\/image-6-1100x600.png 1100w, https:\/\/ibkrcampus.com\/campus\/wp-content\/uploads\/sites\/2\/2025\/03\/image-6-700x382.png 700w, https:\/\/ibkrcampus.com\/campus\/wp-content\/uploads\/sites\/2\/2025\/03\/image-6-300x164.png 300w, https:\/\/ibkrcampus.com\/campus\/wp-content\/uploads\/sites\/2\/2025\/03\/image-6-768x419.png 768w, https:\/\/ibkrcampus.com\/campus\/wp-content\/uploads\/sites\/2\/2025\/03\/image-6.png 1453w\" data-sizes=\"(max-width: 1100px) 100vw, 1100px\" src=\"data:image\/svg+xml;base64,PHN2ZyB3aWR0aD0iMSIgaGVpZ2h0PSIxIiB4bWxucz0iaHR0cDovL3d3dy53My5vcmcvMjAwMC9zdmciPjwvc3ZnPg==\" style=\"--smush-placeholder-width: 1100px; aspect-ratio: 1100\/600;\" \/><\/figure>\n\n\n\n<p><em>Source: Interactive Brokers<\/em><\/p>\n\n\n\n<p>This morning\u2019s dump occurred in the pre-market, when poor earnings from Marvell Technology (MRVL) became the latest semiconductor stock to disappoint investors.&nbsp; None of what they said was particularly terrible \u2013 4Q EPS and revenues, and Q1 revenue guidance squeaked past estimates, while Q1 earnings guidance matched expectations \u2013 but merely \u201cOK\u201d is not enough for high-flying tech stocks these days.&nbsp; Instead, MRVL fell 17% and dragged a wide range of tech stocks down with it.&nbsp; Hence the dump.<\/p>\n\n\n\n<p>Then the chase.&nbsp; This morning\u2019s selloff took SPX nearly to its 200-day moving average, not quite through it, but then Commerce Secretary Lutnick <a href=\"https:\/\/www.cnbc.com\/2025\/03\/06\/cnbc-excerpts-united-states-commerce-secretary-howard-lutnick-speaks-with-cnbcs-squawk-on-the-street-today.html\">said on CNBC<\/a>:<\/p>\n\n\n\n<p><em>This month, my expectation is the president will come to the agreement today and hopefully we will announce this today that USMCA compliant goods will not have a tariff for the next month until April 2<sup>nd<\/sup>. That includes the autos and the autos were the lead in getting this and getting this deal done.<\/em><\/p>\n\n\n\n<p>(And literally, as I was pasting that sentence, there was a Bloomberg headline stating, \u201cTrump pauses tariffs on Mexico for USMCA goods until April 2.\u201d&nbsp; No mention of Canada, though.)<\/p>\n\n\n\n<p>As we get whipsawed by the news flow coming from the federal government, it is very important to keep in mind a few things:<\/p>\n\n\n\n<ol class=\"wp-block-list\">\n<li><strong>Speedy moves can make wonderful trading opportunities, but they can drive investors crazy<\/strong>.\u00a0 Before you react to news flow, be very clear whether you are approaching your decisions as an investor or trader.\u00a0\n<ul class=\"wp-block-list\">\n<li><span style=\"color: initial;\">An opportunistic trader needs to approach highly volatile markets with discipline and with the recognition that the zany intraday moves reflect the reduced liquidity that can occur when volatility reigns.\u00a0 That means that one should set profit and loss parameters before entering a trade and stick to them no matter what.\u00a0 <\/span><strong style=\"color: initial;\">And don\u2019t be driven by FOMO if the market starts to rally!<\/strong><\/li>\n\n\n\n<li>Investors should recognize that while unsettled markets bring opportunities to add or subtract to positions, they should avoid slipping into a reactive stance.\u00a0 <strong>Separate the news from the noise.<\/strong>\u00a0 Real news that affects a company\u2019s bottom or top line might cause an investor to change views about their holdings, but intraday or daily back-and-forth swings probably do not meaningfully affect fundamental valuations.\u00a0 It is a fools errand for long-term investors to chase short-term fluctuations.<\/li>\n<\/ul>\n<\/li>\n<\/ol>\n\n\n\n<ol start=\"2\" class=\"wp-block-list\">\n<li><strong>There is no magic to the 200-day moving average \u2013 or any other indicator for that matter.<\/strong>\u00a0 People typically gravitate to round numbers, so the 200-day moving average is more closely watched than say, the 187-day version.\u00a0 The 200-day is meaningful simply because enough people use it as a yardstick.\u00a0 A moving average is quite helpful for determining whether a trend is in place or is being breached.\u00a0 To be fair, since some of the popular round-number moving averages are typically used as entry-exit-stop loss points for active accounts, there might be some informational value to traders.\u00a0 But a minor breach of a key moving average does not in itself imply dire things to come.\u00a0 (That said, other moving averages, like the 30- and 50-day have turned lower, implying that a longer-term trend change could be in place, implying that the preferred strategy for traders would be to focus on selling high and buying low, rather than the ever-popular inverse.)<\/li>\n\n\n\n<li><strong>Volatility begets volatility<\/strong>.\u00a0 As noted above, liquidity tends to be reduced during volatile markets.\u00a0 I<a href=\"https:\/\/www.interactivebrokers.com\/campus\/traders-insight\/securities\/macro\/like-a-lead-balloon\/\">n Tuesday\u2019s piece,<\/a> we highlighted the tactics our as options market making team utilized when markets became unsettled:\n<ol class=\"wp-block-list\">\n<li><strong><em>Raise vols<\/em><\/strong><\/li>\n\n\n\n<li><strong><em>Widen spreads<\/em><\/strong><\/li>\n\n\n\n<li><strong><em>Shrink sizes<\/em><\/strong><\/li>\n<\/ol>\n<\/li>\n<\/ol>\n\n\n\n<p><em>These were the standard defensive moves that we undertook when markets got hectic.&nbsp; The logic:<\/em><\/p>\n\n\n\n<ol class=\"wp-block-list\">\n<li><em>When there is high demand for anything, one should expect prices to rise.\u00a0 The same applies for volatility protection.\u00a0 The marketplace was eager to buy volatility, so this reflects normal supply and demand.<\/em><\/li>\n\n\n\n<li><em>This reflects both uncertainty and supply\/demand.\u00a0 Wider spreads mean that buyers will need to pay a greater premium to buy, and this also protects the market maker against if the mood changes<\/em><\/li>\n\n\n\n<li><em>The amount of capital that one is willing to risk should change with market conditions.\u00a0 The riskier the market environment, the smaller the desired commitment.<\/em><\/li>\n<\/ol>\n\n\n\n<p><em>It should be clear that the latter two diminish market liquidity.&nbsp;&nbsp;<\/em><\/p>\n\n\n\n<p><em>My advice under those circumstances is to think like a market maker.&nbsp; Lower your risk tolerance, raise your price targets, and get paid to provide liquidity by using limit orders inside the wider markets instead of chasing stocks and options.<\/em><\/p>\n\n\n\n<p>I can state from decades of experience that market makers particularly enjoy an opportunity to make a little bit extra on each trade.&nbsp; That can cause volatility to persist for some time.&nbsp;<\/p>\n\n\n\n<p>Bottom line \u2013 some of you might be enjoying the market\u2019s wild ride, others might be freaked out by it.&nbsp; There are strategies for each in a market like this, but the key is to recognize which type of investor or trader you are and use the appropriate tactics for your style and risk tolerance.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>\u201cDump and chase\u201d is a time-tested ice hockey strategy. It doesn\u2019t work all the time, but its persistence means that it is adequately successful.  For stock traders and investors, who seem to have adopted this strategy on a daily basis, it can be woeful.<\/p>\n","protected":false},"author":4,"featured_media":219558,"comment_status":"open","ping_status":"closed","sticky":true,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[14700,6,8,9,22,26,3],"tags":[18672,18671,16374,10995,15874],"contributors-categories":[13576],"class_list":{"0":"post-219557","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-ibkr-market-insights","8":"category-north-america","9":"category-region","10":"category-securities","11":"category-stocks","12":"category-text-articles","13":"category-traders-insight","14":"tag-200-day-moving-average","15":"tag-investor-strategy","16":"tag-market-maker","17":"tag-market-volatility","18":"tag-stock-trading","19":"contributors-categories-interactive-brokers"},"pp_statuses_selecting_workflow":false,"pp_workflow_action":"current","pp_status_selection":"publish","acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v26.9 (Yoast SEO v27.3) - https:\/\/yoast.com\/product\/yoast-seo-premium-wordpress\/ -->\n<title>\u201cDump and Chase\u201d Works in Hockey, Not in Markets<\/title>\n<meta name=\"description\" content=\"\u201cDump and chase\u201d is a time-tested ice hockey strategy. 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