LUDP Halt

  • October 15, 2020

What is a LUDP Halt? Ahhh, the dreaded stock halt. Chances are, if you've been day trading for any length of time, you've been caught in one. In case you didn't know, any stock can get halted at any time. 

From a LUDP to a News Pending halt, you must understand how to deal with one if you're stuck in it. For these reasons, it's essential to know why halts happen and prevent being caught in one. 

What is LUDP Halt?

  • What is a LUPD halt? It's a temporary pause in trading. The level 1 and level 2 freezes. When stocks are moving at warp speed, it pauses the circuit breaker. In plain and simple terms, it's a temporary suspension of trading. It could be for a particular security or multiple securities at one exchange or across numerous exchanges. Getting caught in those halts can be panic inducing. Will it open up higher or lower than what you got into the trade at? If it's lower, can you recover any losses?

1. What Are the Most Common Reasons a Stock Get's Halted?

Some of the most common reasons you might find a stock halted are volatility, pending news, technical glitch or regulatory concerns.

Alternatively, halts may also be triggered by severe down moves, in what are called circuit breakers or curbs. Can I trade during a halt?

Unfortunately, when a stock is halted, it can't be traded by anyone, not even the gurus at Bullish Bears. If we could give you the keys to getting around an LUDP halt, we would.

However, we can give you stock signals to look at.

LUDP Halt

2. What Are the Risks of Getting Caught in a LUDP Halt?

For starters, one of the main risks with stock halts is that when it reopens, it can reopen at any price. Cringe.

That's why we learn how the stock market works. That doesn't mean we can avoid getting caught in an LUDP halt. But we can learn to recognize potential signs.

Since you're probably day trading when this occurs, put together a safe day trading strategy.

3. What to Do When Caught in a Stock Halt?

Breathe.

Take a deep breath and step away from the ledge. In fact, there's not much you can do if you get stuck in a LUDP halt or any halt for that matter except to wait until trading resumes. 

I don't want to be the bearer of bad news, but a halt because of pending news can last hours or even longer. On a brighter note, with a typical pause of around 5- 10 minutes, volatility pauses are less likely to induce a heart attack.

When the stock does reopen for trading, a few predictable things will play out. For starters, many traders will be either frantically buying (if there was good news released) or selling (if there was terrible news released).

This is important because if you place a market order, you may end up with a much worse price than if you had waited an hour or so.

How Long Does a t1 Halt Last?

  • Getting stuck in a halt is scary. So how long does it last? Be aware that a halt can last up to 10 days. In other words, your stuck in a trade for up to 10 days that can open at any price; up or down. Typically, however,  they much shorter than that and only last minutes. 

1. The Machinery Behind the LUDP Halt: Circuit Breakers

When markets have severe downside movements, stock exchanges take measures to ease panic selling by invoking Rule 48. Under 2012 rules, market-wide circuit breakers (or 'curbs') kick in when the S&P 500 index drops sharply. 

According to the NYSE, a market trading halt may occur at "three circuit breaker thresholds" on the S&P 500. Below are the rules which apply to regular trading hours only:

  • Level 1: When the S&P 500 drops 7%, trading halts for 15 minutes.
  • Level 2: When the S&P 500 declines 13%, trading will pause once again for 15 minutes. For this to happen, the drop must occur on or before 3:25 p.m. ET. Keep in mind there will be no halt if the drop occurs after that.
  • Level 3: If the S&P 500 falls 20%, trading's halted for the rest of the day. 

2. A Black Monday

Did you know that the S&P 500 fell more than 7% on March 12? This drop triggered circuit breakers that temporarily helped halt a further plunge.

Until March 12, the 2,353-point drop of the Dow Jones was the worst single-day drop in history. Until March 16, when the Dow fell astonishingly 2,997.10 points!  

What Are the Different Types of Circuit Breaker Halts?

  1. Circuit Breaker Halt Code: LUDP - Volatility Pause Code
  2. Code: T1 - News Pending
  3. Circuit Breaker Halt Code: H10 - SEC
  4. Circuit Breaker Halt Code: T12 - Additional Information Requested Code
  5. These are the most common symbols that you will encounter. For a full list, you can visit Nasdaq's web site.

1. Volatility Pause Code: LUDP

One of the most common types of circuit breaker halts we see in the market is a halt due to volatility. This means if a stock moves up or down too quickly in price within 5 minutes, it can cause an automatic circuit breaker halt.

Once triggered, trading is paused for 5 minutes. Let's talk a look at a LUDP pause a little bit closer. 

Two of the main benefits of a LUDP halt are the smoothing of volatility in the market and the prevention of flash crashes. Not only does the halt smooth volatility, but it also forces traders to take a 5 minute time out. During this time, you can regroup, look at your trading plan and plot your next moves.

On a positive note, we often see stocks that are spiking up in price, reopen higher once the halt is over. How great is that? On the other hand, a stock taking a nosedive will often open lower.

Personally, I've seen a stock spike up 10% within minutes, get halted for five and immediately spike another 10%. And for a second time, get's halted again, reopens and spikes another 10%. Finally, it spikes and halts for the third time, reopens, sells off 10%, and gets halted going back down. 

The feeling of being caught in a LUDP halt is similar to being on a roller-coaster. More often than not, this roller-coaster ride of extreme volatility is due to a news catalyst.

And you better hope that you have your seat-belt on. Because anything from FDA drug approvals, positive earnings leaks to buyout offers can set the wheels in motion.

2. New Pending Halt Code: T1

In all of my trading years, the most common reason a company halts trading mid-day is that the stock was making a huge move on rumors.

It means the company has asked that trading be halted because they want to release news during market hours - not after hours. 

One thing is for sure in this type of situation: When the stock resumes trading, the market will react to the news. This can play out in one of two ways. Rumors can range from whispers of bankruptcy, driving the stock price down or rumors of a buyout driving the price up. 

In either case, the company feels like it needs a self-imposed time out. It's a chance for the company to regroup and formulate a response to the rumors.

Now they have to be careful in their approach. Deny the rumor, and the stock will often quickly reverse in direction. Because of this, holding a stock that's halted because of pending news can be scary. 

3. How to Prevent Being Caught in a LUDP Halt

As a day trader, you must be on the lookout for stocks spiking on rumors or for no apparent reason. Furthermore, holding stocks that are moving on rumors can expose you to halt risk.

For starters, they are always at risk of getting halted pending news. Therefore, it shouldn't be a surprise if and when it happens.

4. SEC Halt Code: H10

This one is bad. 

Unlike a LUDP halt due to volatility, this halt is because big brother stepped in. When the SEC halts a stock, it's usually because some form of criminal activity is involved.

From front-loading or manipulating the stock price, these are commonly penny and OTC stocks. Unfortunately, the halt can last for days or even weeks.

Worse yet, they often resume trading at a fraction of their price post-halt. Sometimes a drop of 80% isn't uncommon. For these reasons, use extreme caution when trading penny stocks.

What Triggers a Trading Halt? 

  • When exciting news is coming out, especially on a small cap stock, trading is stopped. Other triggers are order imbalance, regulatory concerns, or a glitch technically. And we all know about severe moves that cause circuit breaks to trip out.

1. Key Takeaways

  • A circuit breaker keeps stock prices and the stock market from falling through the floor.
  • During a stock halt, you cannot trade it; you have to wait.
  • Often, a stock that spikes up will reopen higher after the halt.
  • When a stock sells off and is halted, often, it will open lower.
  • We have looser circuit breaker rules between 9:30-9:45 because that is when peak volatility exists.
  • LUDP halts help smooth volatility in the market and prevent flash crashes
  • Be very cautious trading stocks spiking in price due to rumors.

2. How to Profit From Volatility Spikes?

The whole period between 9:30 a.m. and 10:30 a.m. ET is often the best hour of the day for day trading. In the morning, precisely the first 15 minutes, market volumes and prices can and do go wild.

In other words, volatility is at its peak, and this volatility means money. Traders enter into positions based on news, which creates sharp movements in price. 

At their core, the type of volatility that causes circuit breakers to halt is what all day traders look for. For experienced traders, the first 15 minutes of market open are their bread and butter.

With stocks overextended in either direction, they take advantage of this opportunity and strike fast. However, they are smart and steer clear of stocks prone to LUDP halts.

LUDP Halt Final Thoughts

Volatility is where the money is made. The pressing question is whether you have the skill and expertise to profit from these opportunities. If you want to learn how to profit from volatility spikes in the market, Bullish Bears will show you how with our day trading course

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