What is a LUDP Halt? Ahhh, the dreaded stock halt. Chances are, if you’ve been day trading for any time, you’ve been caught in one. In case you didn’t know, any stock can be 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.
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What Is a LUDP Halt When Trading?
What is a LUPD halt? It’s a temporary pause in trading: level 1 and level 2 freeze. 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 entered the trade at? If it’s lower, can you recover any losses?
The most common reasons you might find a stock halted are volatility, pending news, technical glitches, or regulatory concerns.
Alternatively, halts may also be triggered by severe down moves in 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. We would if we could give you the keys to getting around a LUDP halt.
However, we can give you stock signals to look at.
LUDP Halt Risks
One of the main risks with stock halts is that it can reopen at any price when it reopens. Cringe.
That’s why we learn how the stock market works. Of course, that doesn’t mean we can avoid getting caught in a LUDP halt. But we can learn to recognize potential signs.
Since you’re probably day trading when this occurs, create a safe day trading strategy.
Caught in a LUDP Halt
Breathe.
Take a deep breath and step away from the ledge. But, unfortunately, 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 frantically buy (if good news was released) or sell (if terrible news was released).
This is important because if you place a market order, you may have a much worse price than if you had waited an hour.
How Long Does a T1 Halt Last?
Getting stuck in a halt is scary. So how long does it last? First, be aware that a halt can last up to 10 days. In other words, you are stuck in a trade for up to 10 days that can open at any price, up or down. Typically, however, they are much shorter than that and only last minutes.
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 for 15 minutes. For this to happen, the drop must occur on or before 3:25 p.m. ET. Remember, there will be no halt if the drop occurs after that.
- Level 3: If the S&P 500 falls 20%, trading is halted for the rest of the day.
A Black Monday
Did you know the S&P 500 fell more than 7% on March 12, 2020? This drop triggered circuit breakers that temporarily helped halt a further plunge.
Until March 12, the 2,353-point drop in the Dow Jones was the worst single-day drop in history. Until March 16, 2020, when the Dow fell astonishingly 2,997.10 points! That could have caused a LUPD halt.
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Types of Circuit Breaker Halts
- Circuit Breaker Halt Code: LUDP – Volatility Pause Code
- Code: T1 – News Pending
- Circuit Breaker Halt Code: H10 – SEC
- Circuit Breaker Halt Code: T12 – Additional Information Requested Code
- These are the most common symbols that you will encounter. For a full list, you can visit Nasdaq’s website.
1. Volatility Pause Code: LUDP Halt
One of the market’s most common types of circuit breakers halts 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. So, let’s look at a LUDP pause a bit closer.
Two 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. You can regroup, look at your trading plan, and plot your next moves during this time.
On a positive note, we often see stocks spiking in price, reopening higher once the halt is over. How great is that? On the other hand, a stock taking a nosedive will often open lower.
I’ve seen a stock spike up 10% within minutes, get halted for five, and immediately spike another 10%. And for a second time, it’s halted again, reopened, and spiked another 10%. Then, finally, it spikes and halts for the third time, reopens, sells off 10%, and gets halted going back down.
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 seatbelt on. Because anything from FDA drug approvals and 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 halted trading mid-day was 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 needs a self-imposed timeout. 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 a direction. Because of this, holding a stock that’s halted because of pending news can be scary.
3. 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.
These are commonly penny and OTC stocks from front-loading or manipulating the stock price. 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.
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What Triggers a Trading Halt?
Trading is stopped when exciting news comes out, especially on a small-cap stock. Other triggers are order imbalance, regulatory concerns, or a glitch, technically. And we all know that severe moves cause circuit breaks to trip out.
As a day trader, you must look 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.
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, it often opens lower.
- We have looser circuit breaker rules between 9:30 and 9:45 because that is when peak volatility exists.
- LUDP halts help smooth volatility in the market and prevents flash crashes.
- Be very cautious trading stocks spiking in price due to rumors.
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. As a result, traders enter into positions based on news, creating sharp price movements.
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 opening are their bread and butter.
With stocks overextending in either direction, they take advantage of this opportunity and strike quickly. However, they are smart and steer clear of stocks prone to LUDP halts.
Final Thoughts: LUPD Halt
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.
