We will be resuming more site updates over the weekend due to work. It has been a great week where the stocks market “appear” to be in the process of recovering, with a total of more than 500 points gained since previous Friday when Bernanke changed the Discount Rate.
There are also scams in the stocks market, but we will perhaps talk about it as part of an article later. Based on our research, scams are mostly related to penny stocks.
For those who would like to venture into the stocks market, it is not meant for the faint hearted. There are many great books such as the one by Toni Turner, so equip yourselves well before you get eaten up.
There is just one thing that I would like to share in this blog, regarding the “Fake” buy and sell queues in the stocks market.
“Fake” buy and sell queues were sometimes used without warning in the midst of day trading. In one particular instance after a stocks price has run up, a large Buy Queue and small Sell Queue can be created to induce other traders to think that the price will be moving up soon, and fast.
While traders quickly buy up the stocks, Short sellers will be waiting on the other end to sell to the buyers at the Sell Queue. The Sell Queue never gets beaten, even if it is smaller than the large Buy Queue, because the Short Sellers tops up the number depending on the number of traders buying into their game. The Short Sellers has evaluated the market volume and selected their price to lay the trap.
Once they have sold sufficient stocks at the Sell Queue,]]> the Short Sellers will then remove the large Buy Queue which is created by them. Within a split second when you thought that you were buying up into an Uptrend, it turns up wrong! Panicked traders quickly sold down to the now smaller Buy Queue and the price starts to fall. The Short Sellers will then proceed with their short selling by increasing the Selling Queue, creating “Fear” and pressurizing earlier buyers to sell down and cut loss.
Let’s say a stock,
Buy $17.60, Queue 500,000 shares
Sell $17.70, Queue 50,000 shares
After climbing several points with bullish sentiments, many traders will be even more greedy when the see the above and starts to buy into the Sell Queue (i.e. 17.70) in anticipation that the price will go up quickly soon. The Short Sellers will simply top-up the 17.70 whenever someone buys up at $17.70.
After sometime, the Short Sellers will remove the “fake” Buy Queue that was created by them, and increase the Sell Queue instead:
Now it becomes:
Buy $17.60, Queue 50,000 shares
Sell $17.70, Queue 500,000 shares
The Buy Queue will quickly lose its momentum with weak support, and the shock accompanying such sudden change in numbers. With the Short Sellers manipulating the price of the Sell Queue with big numbers, they will be forcing earlier buyers to sell down quickly in fear.
The Short Sellers will then buy back at the lower price, say $16+, to cover their Shorts and hence profit from the trade.
This is just one example, and there are many tactics used in the stocks market,. So don’t “always” think that everything is supposed to work the way they did all the time.