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How to Cap a Stock (Why to....)

  1. AlphaCenturian

    10,543 Posts.
    While I think about it, I thought it worth noting a system that appears to be widely used in mid to small cap stocks on the ASX to shake out sellers.

    I often note posters commenting on why they cannot understand a stock that should be moving up being capped by a large on-screen seller, apparently selling against prevailing sentiment.

    It appears to me that having watched them for a while in quite a range of differnet stocks the key is to pick a stock that is on the cusp of an upwards reversal. (This is the skill bit based on technical, fundamental and possibly inside knowledge of upcoming news.)

    The seller puts up one huge line, much bigger than would normally be seen in the course of normal trade for a stock of that average daily volume, which scares the buyers.

    Considerable buying depth can then build up at the first buy level below the seller, not least buy orders related to the seller.

    As long as he is able to buy faster than the buyers pick off his parcel in sell depth then the arbitrage on the difference between what he is buying and selling pays for his costs in accumulating stock.

    In between times he is able to shake out as many sellers off the wall as possible spooked by his sell order and supported by a campaign of negative posts on the various bb's.

    Very clever, probably very profitable and almost certainly completely legal.

    The system will work well until his sell position is overrun by a surge in buyer sentiment.

    Happy to hear from anyone who thinks this is [email protected] but any serious trader on HC will have seen this done many times over.

    My point is - it can be very profitable to identify stocks that are being milked like this and join the buy depth.

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