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Strategies & Market Trends : Your Worst Trading Enemy.. You
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To: Fun-da-Mental#1 who wrote (58)1/25/2001 9:17:47 PM
From: Ally  Read Replies (3) of 223
 
>In these cases it may be better to set a limit order rather than a stop, and wait for it to be taken out. Or you could set a stop and a limit, but then it's pretty random which gets taken out first.<

Good point! Limit order rather than a stop is more appropriaate in certain cases such as an illiquid stock, or a stock that is played by specialist (market maker). Also, stops will be easy lunch for small brokerage firms who trade on their accounts.

Take for instance what I've experienced recently. I shorted DSG (on TSE) believing that the stock has had a run up, and is due for retracement. I notice one small brokerage firm quite frequently crossing either 10,000 or 100,000 shares when the stock is on uptick. The firm is also active as both buyer and seller.

From the stock action, it seems to me that:

1) It buys up all the low bids from individuals.
2) Crosses large volumes on a white 5 minute candlestick. This creates a illusion of daily liquidity on the stock. Also, would attract individuals to jump in and chase the stock.
3) Then, it feeds the individuals the stock bought at the low bids.

Anyone else observed the above situation before? Is it legal for a firm to cross large trade internally and give appearance of large volume?

I covered my short today.. but not by placing a stop. I watched the 5 minute chart and bid/ask closely. If I had used a stop, the firm would have had me for lunch. At times, the spread was as much as a buck !!

Canucks here... check it out... Descartes Systems DSG/TSE
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