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I am about to reveal a secret I discovered by accident and then later found validated in a book titled "Wall Street Jungle." OTC specialists will often pick up low volume stray sell values in an effort to increase available shares before moving the stock in a big way either up or down. Most people set stops and outs at even values like 15 or 23.5. If I am in a stock at lets say it is 13 5/8 and moving up, I will set an out at maybe 13 7/8. Two out of three times I have noticed the stock will top at exactly 11 7/8 before heading down. The specialist obviously wanted my shares! Setting stops at even values (you stay with the crowd to sort of speak) increases the chances you will not be stopped out. If this looses you money, I am not responsible!
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From: Tim Kruzel
Sent: Thursday, September 11, 1997 2:57 PM
To: MetaStock User Group
Subject: Did I Get Screwed or Did I Just Screw Up?
I would like to describe a trading situation that occurred to me today
and get some opinions from you "salty and seasoned" traders.
I bought a stock TRDT (OTC) about a month ago at 15. The bid/ask
was bid:14, ask:15. Naturally I expected an upward breakout. The
breakout came yesterday. The stock ended the day with a bid/ask of
bid:16 1/4 ask: 17 1/8. In order to protect against a loss I placed a
stop loss order at 16 just prior to the market's opening. To my
surprise, 5 minutes after the market opened I received a
confirmation call from my broker. My TRDT holding was sold at
16 1/8. As of moments ago TRDT has a bid/ask of bid: 17 5/8,
ask: 17 7/8.
Did I make an error in judgement with respect to where I set my
stop loss given the wide bid/ask spread, or did I just get the shaft
from a market maker? Any comments, questions, observations
welcome. Thanks,
Regards
Tim
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