What are trading halts? Per Investopedia a trading halt is the temporary suspension of trading for a particular security or securities at one exchange or across numerous exchanges. In other words, a halt puts a stop to trading for a period of time for an investigation.
Halts are typically something you see when day trading. Usually they occur when there's news, order correction, a technical glitch or the SEC is concerned with something.
Have you ever been in the middle of a day trade that's flying and all the sudden there's a trading halt? That isn't always a fun feeling because you don't know when the stock will resume or what direction it'll resume in.
However, the move that usually results in a halt is pretty fun. Parabolic movers move a large amount quickly. This usually occurs because of an institutional traders careless order, news good or bad, or buy and sell orders triggering when support or resistance is breached.
That causes the stock to usually shoot up in price a lot and quickly. The SEC sees that and issues a trading halt. In essence the price freezes until the halt is over.
There's no time limit on trading halts. That means it can last a couple months or forever. In fact, some stocks have halted and never resumed trading. What happens to the people that were in trades with that stock? Usually it's a lost trade for them.
Some stocks will stay halted for up to 6 months. If you're in a stock that halts for that long, you have to wait for it to resume. There's really nothing to be done.
Many times however, trading halts resume within minutes. Open orders that haven't been filled when a trading halt occurs can be canceled. That way you don't end up on the wrong side of a halt that resumes trading.
Many times news, good and bad, causes a dramatic price swing. As a result, companies will agree to give news to the major exchanges before it hits the public. This is often times why news is released after hours.
That gives traders time to decide how they want to play a stock. However, there are times that news will come out during trading hours. As a result, the exchanges will halt a stock. The reason for this is they want the information to get out there fairly.
Although, if you're in the stock that's halted, you may not see that as fair in the moment. There are many things that can cause a trading halt. For example, a company's financial status changing, merger and acquisitions, or a restructuring of a company.
Sometimes a company will issue a recall on its product or there are changes to upper management. If you trade using fundamental analysis, then you know that management can make or break a company.
There are legal issues that can stop a company from being able to function properly. All of these things are components to cause trading halts. Many times halts occur on small cap stock like penny stocks.
Our trade rooms are up on any halt that occurs; especially when our members are in the trade.
Doesn't seem like trading halts occur pretty quickly after the market opens? Like we stated above, many companies wait until after market to release news. It gives traders time to make a plan.
However, it can also cause the buy and sell orders to get out of whack. As a result, an exchange can decide to halt a stock when the market opens in order to get the buying and selling under control.
These types of trading halts last only a few minutes. The SEC has the power to halt a stock up to 10 days if they feel they need to investigate a stock further. There are times the SEC feels that trading certain stocks is unsafe for the public.
Usually this occurs when a company hasn't filed its financial reports or statements. There are times when a halt lasts much longer then 10 days though.
That's when your funds can be trapped in a halt. However, when a halt lasts longer than 10 days it's referred to as a trading suspension. Make sure to find a service that isn't pumping stocks that could cause a halt.
If you're a member of the our stock market trading group, then you know that we have a customized Trade Ideas scanner specifically for halts. Many times, a stock that's halted has had a parabolic move up.
Once the halt is over, many times that stock then continues to rip up. As a result, you can make a nice scalp off those moves.
The goal of every day trader is to scalp profits on movers like that. So it's handy to have a way to find those moves. It's why scanners are an important part of day trading.
Trading halts put a temporary stop to trading certain stocks. Many times they're stocks that have a lot of volatility. Since day traders are hunters of volatility, these can be attractive stocks to trade. With anything in trading, it's all about being safe and trading proper risk management.
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