Stop loss hunting trap:
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 1.77
2- sell 50 shares at 1.75
3- sell 50 shares at 1.74
4- sell 50 shares at 1.72
5- sell 50 shares at 1.71
6-sell 50 shares at 1.80
7-sell 10 shares at 1.68
8-sell 50 shares at 1.67
9-sell 50 shares at 1.65
10-sell 50 shares at 1.62
11-sell 50 shares at 1.61
12-sell 1 share at 1.60
13-sell 5 shares at 1.66
14-sell 50 shares at 1.65
15-sell 12 shares at 1.60
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.
Please help me spread the word so that as many fellow Canadians as possible are aware of what goes on behind the scenes.
Fishing for liquidity
Imagine being a farmer looking for water. You start digging a well. 10 meters deep no water, 20 meters deeper still no luck so you keep digging deeper and deeper hoping to find enough water to justify the investment and time spent digging. Now imagine a bunch of short sellers who sold millions of shares short and are digging/fishing for stop loss orders or people who will be forced to sell at a certain price (those who bought on margin and can't honour repeated margin calls for more cash as the price keeps going down…) that will allow them to cover their shorts. Short sellers will do anything to push, force or convince you to sell because they are sitting on millions of shares that they must buy to cover their short positions.
Imagine that I assume that there are enough shareholders that will be shaken out if the price is low enough.
What happens when a “strong invisible” hand meets weak hands?
“Imagine” a market where there is one strong hand representing smart money and 20,000 weak hands representing fearful money. The strong hand knows the game of shorting stocks both directly (2 to 5% of float) and indirectly using put options 95 to 98% of float) and has been playing it for decades squeezing the weak hands. The ruse goes like this:
- They dump a large order of 50 million shares for $6 a share
- A few months later they sell short another 30 million shares for $5 a share
- A few months later they sell short 10 million shares for $4 a share
- A few months later they sell short 5 million shares for $3 a share
- A few months later they sell short 3 million shares for $2 a share
- A few months later they sell short 2 million shares for $1 a share
- At the end of this short ladder attack spanning many years the strong hand would have sold short 100 million shares for $513, 000,000 ($5.13 per share on average) bought by some 20,000 retail investors who are now faced with two options :
- 1- Surrender to the shakeout and sell for $1 and realize your loss.
- 2- Realize you are the target of financial bullies fishing for liquidity and hold the line until short sellers get squeezed when the business cycle turns
If all hands are weak and sell at $1 the strong hand walks away with over $400 Million dollars. It is a big game that is why they can afford paid bashers spreading fear all day every day.