Friday, 6 July 2012

What is reset trading?

Reset trading is a particular style of day-trading.

At midnight Pacific time, the daily price changes for moviestocks and other securities on HSX are reset to zero.

Years ago, some traders noticed that the first moviestocks to move in price after reset are often still among the big movers at the end of the day.  They also found that they could make money by buying the moviestocks that were the first to go up in price after reset, and by shorting the moviestocks that were the first to go down.  They could do this confident that other traders – ones who are in other time zones, or who don’t have insomnia ‑ would take the cue and follow, driving the price up (or down) even further.

Reset trading is not risk free.  It is like a Ponzi scheme that you buy into, betting that other people will be following you.  It’s great when you are one of the first people to buy in.  The trick is not to be one of the last people to buy in.

This is because eventually, enough traders decide they have made enough profit.  They sell their shares and then maybe short, putting downward pressure on the price.  The Ponzi scheme collapses, and a new one begins – except this time it’s great when you are one of the first people to sell and short, and the trick is not to be the last person to sell out.

For active traders, playing the reset can be very profitable.  But if you do play the reset, make sure that you are active.

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