The Shakeout (Tricks of the Trade)A market professional may want...

The Shakeout (Tricks of the Trade)

A market professional may want to accumulate a large position in a stock that is trending strongly; either for his own account or for a major client. How does he/she do this? If he starts placing buy orders in the pool, he will chase the stock up sky high, without being able to build a big enough line.

The golden rule is: buy into weakness.

Patience: The professional bides his time, waiting for the stock to consolidate or start a short-term correction. He knows that trading will be quiet during this phase: buyers lose interest for a while and look elsewhere. He also knows where most traders have their stops.

Adjusting Stops In strong-trending stocks, most traders will seek to lock in profits by placing their stops below the previous short-term (or intermediate) low.

A few well-placed sell orders on a quiet day will drive the stock below its' support level. Stops are triggered, sending a flood of sell orders into the market.

Everyone takes fright while our market professional steps forward and scoops the pool; buying in the face of the correction. Selling dries up when the stops are filled and the stock soon recovers back into its normal trading range. Everything returns to normal; except that our market professional now has a sizeable parcel of stock, accumulated at bargain-basement prices; and a group of punters curse their luck while the stock soars into the stratosphere.