Stock dropped 12% then went back to original level in minutes

[AceStar]

I held some shares in AEO and noticed that today it dropped something like 12% in less than a minute, then a few minutes later it was back at its previous level.

Unfortunately it triggered my stop loss and all my holdings got dumped at the momentary low price. It's lost me a couple of hundred bucks which I can't get back!

What could have happened??!! I've never seen this kind of thing before. I thought I was wise to set up a stop loss at a nice conservative approx 10% below where the stock was at the time, but now it appears I'm a sucker and my stop loss was a ticket to me losing heaps of money that I can't regain.

I posted in this forum as I'm a beginner so please go easy on me I use commsec if you're wondering.

 

[explod]

Do not be deterred, I have not been following this stock for some time but the movement over the last few days indicate that the upward move of the last six days has stalled. There are a myriad of reasons, not least of which being a Friday someone ending a trade off that rise, why it fell today.

You still have the fat of your capital and the excercise will lead you to the answers. There will be many others on here who will help, so stay tuned.

all the best for your future trading,

cheers explod

 

[pixel]

I use commsec if you're wondering.

I'm not wondering at all.
What you just experienced is called a "Stop Raid", and it works like this:

"Someone" has a "fair idea" where the highest stop loss orders are sitting. It may only be a few ticks below current market action. Doesn't take much to sell down into that range, taking out only a few buy orders on the market depth.
The rest is automatic...

Now, if that "someone" has also a "fair idea" where the lowest stop loss orders are sitting, it's quite easy too to place a few strategic buy-back orders.
The rest is also automatic.



If it's any consolation: You are not the first nor the last to have that done to you. My similar experience goes back 11 years - and I have not placed a single automatic stop-loss order with anybody since. Of course it makes watching my trades mandatory; local "alerts" that run on my own computer can let me know when a stop loss threshold (or any other condition I care to know about) is breached; I usually place such an alert early enough that I have some time to check the course of trades before executing the required order. Often enough, it "looks like" a stop raid - giving me an opportunity to take part in the bottom picking exercise, should I so desire.

 

[nunthewiser]

Yep pixel and these raids are made mighty easy on thin depths , often they will jangle the depths to spook them for the raids .... i havent been following the stock mentioned but do know the scenarios that occur on a frequent basis

 

[tech/a]

I'm not wondering at all.
What you just experienced is called a "Stop Raid", and it works like this:

"Someone" has a "fair idea" where the highest stop loss orders are sitting. It may only be a few ticks below current market action. Doesn't take much to sell down into that range, taking out only a few buy orders on the market depth.
The rest is automatic...

Now, if that "someone" has also a "fair idea" where the lowest stop loss orders are sitting, it's quite easy too to place a few strategic buy-back orders.
The rest is also automatic.



If it's any consolation: You are not the first nor the last to have that done to you. My similar experience goes back 11 years - and I have not placed a single automatic stop-loss order with anybody since. Of course it makes watching my trades mandatory; local "alerts" that run on my own computer can let me know when a stop loss threshold (or any other condition I care to know about) is breached; I usually place such an alert early enough that I have some time to check the course of trades before executing the required order. Often enough, it "looks like" a stop raid - giving me an opportunity to take part in the bottom picking exercise, should I so desire.

100K traded at that price point taking out all until filled.
Far less than that bought back so chances of the above scenerio being true are pretty well zip.

Why sell 100,000 shares at a price less than the 30,000 you buy back?
Id say someone needed to liquidate this stock fast.
Probably forgot the wifes birthday!

 

[AceStar]

Thanks for the explanation...

Hmmm is there a solution for avoiding this type of thing?

Set the stop loss a lot further from the action (mine was already about 10% out)? Stop using stop losses? Set up a some other trigger?

 

[nunthewiser]

100K traded at that price point taking out all until filled.
Far less than that bought back so chances of the above scenerio being true are pretty well zip.

Why sell 100,000 shares at a price less than the 30,000 you buy back?
Id say someone needed to liquidate this stock fast.
Probably forgot the wifes birthday!

Very good point , like i said i havent followed the action but most stop raids are accompanied by a larger volume buyback once the panic sets in . makes no sense to sell more than you wish to buy if thats the strategy being used.

 

[explod]

Thanks for the explanation...

Hmmm is there a solution for avoiding this type of thing?

Set the stop loss a lot further from the action (mine was already about 10% out)? Stop using stop losses? Set up a some other trigger?

For me I get an auto text alert from my broker (Westpac) at my predetermined price levels. This allows me to then check the bona fides of whats going on and make a decision to buy or sell accordingly.

 

[skc]

100K traded at that price point taking out all until filled.
Far less than that bought back so chances of the above scenerio being true are pretty well zip.

Why sell 100,000 shares at a price less than the 30,000 you buy back?
Id say someone needed to liquidate this stock fast.
Probably forgot the wifes birthday!

What do you mean sell 100K at a price less than the 30K you buy?

I thought the sellers were regular small time holders (like the OP) while the buyer was the Stop Raider. The raider was able to pick up 30K shares on the cheap... I didn't think he sold the 100K shares as well?!

Thanks for the explanation...

Hmmm is there a solution for avoiding this type of thing?

Set the stop loss a lot further from the action (mine was already about 10% out)? Stop using stop losses? Set up a some other trigger?

Like already said, this happens a lot in thinly traded stocks. You also see this happens a lot with various newsletter / tip sheet recommendations - on both entries and exits.

One way to stop this is the use of stop-limit orders... say your stop is $1 you can put a stop-limit order at 98c. Which means when $1 stop is triggered a limit order of 98c will be sent to the market. If there were bids above that you will be filled at the bid, or if there wasn't you will be have a sell order at 98c waiting to be filled. This will avoid getting caught in this kind of spikes, but you need to be careful - if it was a real plunge (e.g. coming out of a halt with bad news) you have not cut your loss.

Interactive brokers offer this kind of orders - possibly others as well...

 

[skyQuake]

Prob someone fat fingered or end of a line. Sold 100k at mkt. Moral of lesson is not to set ur stops so far away, and to use stop LIMITS rather than stop mkt.

 

[pixel]

100K traded at that price point taking out all until filled.
Far less than that bought back so chances of the above scenerio being true are pretty well zip.

Why sell 100,000 shares at a price less than the 30,000 you buy back?
Id say someone needed to liquidate this stock fast.
Probably forgot the wifes birthday!

Seems you're right there, tech/a
After analysing the sales by order (which I had time and opportunity to do now) it's possibly a case of "butterfingers" in that one seller took out 105,020 buy orders from $1.68 right down to $1.49.
What puzzles me then, however, is the claim that a stop loss was triggered by that process. There were a mere 1,518 shares bought from 6 different sellers, whereas the next sale, 3,000 shares, went through at the original $1.68.

If that was a stop loss order, generated through the earlier dump, I'd like to have a serious discussion with the programmer of that piece of soft ware - maybe send him or her back to Program Logic 101.

Unless of course AceStar had placed his stop-loss order for 105,020 shares at $1.68.
Did you???

Had I been interested in AEO, I would have picked $1.68 (pink horizontal line) as entry and $1.58 (green horizontal line) as my trailing stop-loss. (But of course not to the tune of 100k shares.)

 

[kkyyoo]

100K traded at that price point taking out all until filled.
Far less than that bought back so chances of the above scenerio being true are pretty well zip.

Why sell 100,000 shares at a price less than the 30,000 you buy back?
Id say someone needed to liquidate this stock fast.
Probably forgot the wifes birthday!

Time Price Volume
01:44:15 PM 1.490 3,452 Panic Holders
01:44:15 PM 1.500 15,013 Holder Stop loss executed (plotted buy)
01:44:15 PM 1.500 20,000 Holder Stop loss executed (plotted buy)
01:44:15 PM 1.580 5,000 Final Attack, Stop loss triggered (holders)
01:44:15 PM 1.600 5,000 Third Attack
01:44:15 PM 1.600 6,046 Panic Holders
01:44:15 PM 1.610 1,500 Panic Holders
01:44:15 PM 1.610 3,194 Panic Holders
01:44:15 PM 1.620 12,000 Second Attack
01:44:15 PM 1.620 5,584 Panic Holders
01:44:15 PM 1.640 1,000 Panic Holders
01:44:15 PM 1.645 827 Panic Holders
01:44:15 PM 1.650 1,212 Panic Holders
01:44:15 PM 1.655 2,000 Panic Holders
01:44:15 PM 1.660 3,000 Panic Holders
01:44:15 PM 1.660 18,000 Attack Begins

If i am the holders, and my stop loss is @ $1.58, I would've put my selling price lower than my stop loss to make sure the shares were sold, eg in this example: $1.500. Says the attacker knows where the selling prices of the stop losses are and set the plotted buy order on that price (in this case there are no buyer between 1.58 to 1.50). the attacker would've gain:

sold (18,000 x $1.66) + (12,000 x $1.62) + (5,000 x $1.60) + (5,000 x $1.58) = $65,220 (Avg sale price of $1.6305)

bought 35000 x 1.50 = 52,500 (Avg purchase price of $1.50)

by the end of the day (SP of $1.655), attacker would've got:

35000 shares @ $1.655 = $57,925
Cash of ($65,220 - $52,250) = $12,970

Total $70,895


Compared to
40000 shares @ $1.655(opening/closing price) = $66,200

Just using my imagination

 

[pixel]

Time Price Volume
01:44:15 PM 1.490 3,452 Panic Holders
01:44:15 PM 1.500 15,013 Holder Stop loss executed (plotted buy)
01:44:15 PM 1.500 20,000 Holder Stop loss executed (plotted buy)
01:44:15 PM 1.580 5,000 Final Attack, Stop loss triggered (holders)
01:44:15 PM 1.600 5,000 Third Attack
01:44:15 PM 1.600 6,046 Panic Holders
01:44:15 PM 1.610 1,500 Panic Holders
01:44:15 PM 1.610 3,194 Panic Holders
01:44:15 PM 1.620 12,000 Second Attack
01:44:15 PM 1.620 5,584 Panic Holders
01:44:15 PM 1.640 1,000 Panic Holders
01:44:15 PM 1.645 827 Panic Holders
01:44:15 PM 1.650 1,212 Panic Holders
01:44:15 PM 1.655 2,000 Panic Holders
01:44:15 PM 1.660 3,000 Panic Holders
01:44:15 PM 1.660 18,000 Attack Begins

If i am the holders, and my stop loss is @ $1.58, I would've put my selling price lower than my stop loss to make sure the shares were sold, eg in this example: $1.500. Says the attacker knows where the selling prices of the stop losses are and set the plotted buy order on that price (in this case there are no buyer between 1.58 to 1.50). the attacker would've gain:

sold (18,000 x $1.66) + (12,000 x $1.62) + (5,000 x $1.60) + (5,000 x $1.58) = $65,220 (Avg sale price of $1.6305)

bought 35000 x 1.50 = 52,500 (Avg purchase price of $1.50)

by the end of the day (SP of $1.655), attacker would've got:

35000 shares @ $1.655 = $57,925
Cash of ($65,220 - $52,250) = $12,970

Total $70,895


Compared to
40000 shares @ $1.655(opening/closing price) = $66,200

Just using my imagination

Looks good in theory, kkyyoo
Problem is, as I pointed out: Those 105,020 shares came all from the same seller and were executed at the same second. That left no time at all for any holders to panic and initiate new sell orders.

If we agree that a triggered stop loss must be a sale, reality doesn't match your imagination - in this specific case

 

[JimBob]

A bit of a strange dump, nearly 40,000 went through at $1.49-$1.50 before the price rebounded straight back up to $1.70. Stop Losses sometimes take a little while to go through, hopefully your fill price was above $1.50.

With a bit of patience instead of the at-market sell, the seller could have got an extra $4-6k from their sale IMO.

 

[georgey]

Control yr risk with size (half or third yr desired position), possibly
have a resting buy for the other half at a much lower level in case of this
happening. Sometimes the market will keep going and you will be down a lot
on paper but would that be as much as all the losses suffered over years with
stops being hit then the mkt returning to prior levels.
Many traders bet too much.

 

[AceStar]

Prob someone fat fingered or end of a line. Sold 100k at mkt. Moral of lesson is not to set ur stops so far away, and to use stop LIMITS rather than stop mkt.

Mine (O.P.) were, unfortunately, limits. The trigger was about 10% lower than the recent price and the limit was about 1.5% below that.

Whoever it was selling down through the buy depth (or whatever) must have happened to then put in a buy order which came in above my lower limit thus grabbing my shares.