In stock trading, twin practices have coexisted for ages. First, a large number of investors enter stop-loss orders to protect themselves. Second, such stop-loss orders become sitting ducks for some professionals.
In the past, it was a common complaint that market makers and brokers tended to run the stops. These days hunt-and-destroy algorithms have evolved to run down the stops. Such algorithms simply try to guess where the stops are grouped, and if stops are hit, the algorithms take advantage, first, by short-selling and then buying to cover. The complexities are overly simplified here to illustrate the point.
Apple Is vulnerable to stop running
Monday morning, Apple AAPL dipped to $497 in the premarket as both The Wall Street Journal and Japan’s Nikkei reported that Apple had cut orders for screens and other parts for the iPhone 5.… Please click here or the title below to read more.