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RAIT Financial Trust Message Board

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  • lmtrack lmtrack Sep 24, 2008 6:45 PM Flag

    what is going on

    Back in the old days, we used to call it "blowing out the stops":

    It's a cascade effect, especially if traders have backed up short-term gains by putting in stop-loss orders at prices not far below the market price, to protect their profits.

    e.g.: I buy at $6.50, price goes up to $7.00. I put in a stop-loss sale order at $6.75, to insure I make at least .25 on the trade, then I can go take a nap. If the stock goes up further, I move my stop up or sell, after cancelling the 6.75 stop-loss order. If the stock goes down, when my stop-loss order gets executed, I still make a small profit, and get my capital investment back, to buy in again at a (lower) cost.

    Not short-selling, but can have comparable effect, if executed on a large scale. Just buy a ton near the low of the day, wait for a good up move, and enter stop-loss orders just a hair below the high. ( If you can manage it! )
    Any down-tickle kicks in the cascade: take the money & run, or put it back in cheapside.

    When lots of people do this, the cascade can cause a sharp decline as more and more stop-loss orders get executed, each one adding more downside pressure to the price.

    Easier said than done, like most make-a-quick-buck schemes.

    see:
    http://www.investopedia.com/terms/g/gatherinthestops.asp

 
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