Stop hunting example You will avoid the shake out trap if you understand the mechanics behind short selling. Hedge funds walk away with billions every year from hard working Canadians trying to prepare for their retirement. They place orders as little as 1 share at decreasing prices until the price drops significantly enough to trigger stop loss orders that some unsuspecting retail investors automatically place to protect their downside. Example: I place 15 sell orders at strategic times (when liquidity is very low, at the beginning or end of the trading session)
1- sell 50 shares at 1.97
2- sell 50 shares at 1.95
3- sell 50 shares at 1.94
4- sell 50 shares at 1.92
5- sell 50 shares at 1.91
6-sell 50 shares at 1.90
7-sell 10 shares at 1.88
8-sell 50 shares at 1.87
9-sell 50 shares at 1.85
10-sell 50 shares at 1.82
11-sell 50 shares at 1.81
12-sell 1 share at 1.80
13-sell 5 shares at 1.76
14-sell 50 shares at 1.75
15-sell 12 shares at 1.70
By sacrificing a few shares at a discount hedge funds can trigger the sale of thousands if not millions of dormant shares owned by naive retail investors who placed stop loss orders on them and that brokers and short sellers are happy to scoop up to cover their shorts and hoard them for when the stock starts rising up again.
Short sellers use derivatves like put options and futures to manipulate the underlying stock all under the radar.