TFWG, Regarding trailing stop loss order
I don't like them because it gives the MM a shot at picking off your shares cheap. I believe that's what happened a couple of weeks ago when we fell below $22 for a very brief spike down and right back up. When the stock is falling buyers get nervous, which can lead to few buy orders and a lot of stop loss orders that were x% below a recent high. The MM swoops in, taking the price down as far as the imbalance between limit order buys and stop loss sells allows, picking up cheap shares to sell at the real equilibrium point that the stock was trading at just before and just after the little spike. If you are able to follow the stock closely, you can put in a mental stop loss. (Your broker may even be able to notify you electronically or call if the stock hits a certain level.) If the stock falls to your threshold you can sell out. It also gives you a chance to think about it if the fall is for fundamental reasons, which would lead to selling, or seems to be just market volatility which might cause you to hang on. The risk is that negative news comes out and the stock quickly falls through your stop loss level without ever being halted. Personally, I hate giving the MM an easy opportunity to steal my shares away.
I have a question that is somewhat related. I notice on IDCC and many other stocks, the first couple of trades at the open tend to be relatively far apart. What are the rules/limits on the MM's ability to buy at one price and sell at another? If IDCC closed at $25 the prior day, it will open at $24.75, next trade will spike up to $25.30, then there will be a number of trades between $25.05 and $25.10. I haven't put in a market order at the open since the day after Reagan was elected. I bought GLM at the open at $55, up $5 from the prior close. It immediately fell back to ~$51 and stayed there all day. I am very wary of the MM and hate to give them a chance to take advantage of my orders. I'd love to understand more about it.
