DID YOU KNOW?
The Market Can See You !
Among the many “secrets” of Wall Street (at least to new traders/investors), includes the fact that the market makers (brokers, institutions, major traders….) can detect orders through the platform “ticker” on their screen.
When an individual places an order with their online broker, they use a trading platform. There are separate sections for stocks, options, and other vehicles, all of which are public. Personal information is not detectable; however, the action (which is the buy or sell), the share size, and the price are documented and viewable, in an area known as the “ticker tape.” This ledger moves very fast, and is normally color coded, making it easy for the highly experienced to base their own trades on the information viewed.
When a buy, or sell order, is placed, the trader/investor can see their own order on the screen, and there is very little subsequent effect on one’s trade.
However, in the case of any type of STOP or LIMIT order, the ability for the experienced to view the order may be problematic. These prices can be manipulated by large institutions and/or traders, as they are often only looking for only very small moves (sometimes only a few cents). A retail investor (which most of us are), is generally looking to swing trade or invest longer term, and does not react as quickly. This subject is covered in more detail in our recent publication, When to Buy and When to Sell; Combining Easy Indicators, Charts, and Financial Astrology - available on Amazon.
For example, an investor/trader buys $1,000 worth of X stock, at $10 per share, and responsibly desires to exercise risk management. It has been decided that the acceptable risk is only 10%, which would equal a $1 decrease in the stock price. Trading platforms provide the ability to place a STOP to automatically SELL, should the price decrease to that target price. We highly suggest NOT to place the order on the platform. This allows the market makers to “SEE” your order, and potentially drive down the price to the target level, then buy your shares at that lower price. It is legal and it happens all the time!
We suggest having a price in mind that you would sell, if/when reached, and make the trade manually. This takes discipline, so set your rules – and STICK TO THEM.
If you are in the green (profit), and are not as concerned about your shares being sold, then a TRAILING STOP may be suitable. A Trailing Stop is not a set target price. It basically protects one’s profits, as the sell price will trigger at the selected amount below the current price. Trailing Stops are not generally seen on the platform, though some can be within the last few cents of the target price.
Using the same example above, you purchased $1,000 worth of X stock, at $10 per share. Since your purchase, the price did not “dip” to $9 (where you had your mental stop), and has actually risen to $13. Your profit is currently $300, and you desire to ensure at least a $200 gain. A Trailing Stop can be placed at $1 below the current price of $13, which would automatically be sold at $12, should the price decline to that level. If the price continues to rise (and does not decline to $12), the sell price will trail the current price by $1. If the stock reaches $16, your sell price would automatically move up to $15, ensuring a $500 gain. These types of STOPS are beneficial, and allows one to let the “winners run” (another popular investing phrase). As noted, these orders are actually safer to physically enter into the public system, although not fully secure. We would still suggest to use these stops mentally and manually, remember to stay unemotional, and FOLLOW YOUR PLAN!
