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Quadruple Witch Bearish Patterns in Stock Indexes

Here is some surprising research. Tomorrow is a Quadruple Witching Friday. What happens on this day that is widely known for its volatility? The DontTradeOnQuadWitch function has been added to test setups on Quad Witching. I was surprised to see how consistently bearish quadruple witching can be in the stock indexes by simply shorting the open, even during bullish time periods. We have placed the code and video in our Mastering Tradestation for Automated Trading Course.





Quadruple Witching also known as "quad witch" refers to a specific day in the financial markets when four types of derivative contracts expire simultaneously:

  1. Stock Index Futures: Contracts that allow investors to buy or sell a stock index at a predetermined price and date.

  2. Stock Index Options: Options tied to the performance of stock indices.

  3. Single Stock Options: Options tied to individual company stocks.

  4. Single Stock Futures: Futures contracts on individual stocks.


Quadruple Witching Key Characteristics:

  • Timing: Quad witching occurs four times a year, on the third Friday of March, June, September, and December.

  • Increased Trading Volume: The simultaneous expiration of these contracts leads to significant adjustments by traders and institutions, resulting in a spike in trading volume.

  • Heightened Volatility: Due to traders rolling over positions, closing contracts, or adjusting hedges, market prices can become more volatile, particularly near the close of trading.

Implications for Traders on Quadruple Witching:

  • Market Movements: The increased activity can cause abrupt price swings, making it both a risk and an opportunity for short-term traders.

  • End-of-Day Dynamics: The last hour of trading, often referred to as the "witching hour," is especially active as traders finalize their positions before contracts expire.

  • Hedging Adjustments: Institutional investors and market makers often adjust their hedging strategies, impacting the underlying stocks and indices.

While the increased trading volume and volatility can present opportunities, they also pose risks, particularly for less experienced traders who may be unprepared for sudden market shifts.

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