cer question, page-21

Coppertop,

Just a quick note in response to your posting as you have raised a good point.

Those of us who have been around a bit longer than is healthy know that it's common practice to tap the bid line with very small sales to try and trigger stop losses, margin calls or give the impression of a falling market. When the world was collapsing about a year ago, there were a number of postings which showed clearly how this operated very effectively.

When the bid price drops a tick (say from 10.5 to 10), the bot will put through one or more very small sale orders. They don't all go through at once and may be stretched out over a period of time. Anyone who has stop-losses set with their broker at this level will get stopped out causing a cascade effect as shares are sold. Margin calls similarly.

A good example of this looks like it took place at 14:57:54 with 2 x 92 share sales, although it didn't seem to have too much effect in this instance.

There is also a psychological angle to this bot behaviour, which is really where the power of this strategy lies. If you are looking at an intra-day chart or watching the action in real-time, the price shows (quite validly) as having hit the lower price giving the impression of a step down. You also get the "Oh no, the price has dropped again. Somebody must know something!" fear, even though it is doing so in very small automated transactions. This is what can drive the cascade down.

The aim of this strategy is of course to get the price to drop in order to close out a short position (which doesn't current apply to CER but does to CNP and others) or buy long cheaper. It really is very effective as you can probably attest if you have been caught out by it.

Of course the reverse strategy can also be employed (tap the offer) when a bot wants to sell but it is of course less effective, especially in the current market.

So, next time you see a tick down and a spattering of small trades go through at the bid price, you'll know what it going on. You'll also now understand why algo (bot) trading technology is such a lucrative business.