Mast Therapeutics, Inc. (MSTX)

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Posted By anxmoney Yahoo,Sell and buy imbalances

Sell and buy imbalances are posted by the specialists at 20 min and again at 10 min before the close of the trading day. These are orders from institutions to sell large blocks of shares at the closing price for the day. If the specialist cannot accomodate these orders they are posted so that individual traders can help unload the shares.

In theory a large buy imbalance will cause a stock to gap up at the closing price to accomodate the order and the reverse would be true for a sell imbalance which should gap down the price of the stock. The way traders profit from the move with a buy imbalance is by buying the stock right before the close and sending an immediate sell on close order. In this way, the buy imbalance is reduced by long traders who are seeking a profit and ease the specialists job.

You should buy the stock and sell market on close for a buy imbalance, and you should short the stock and cover market on close for a sell imbalance.

The larger the imbalance the higher the probability of success, but it is by no means a certainty as anything can happen in the last minutes of trading, furthermore once you place a MOC (market on close) order it cannot be canceled and you can be left to exposed to institutional traders and hedge funds using these imbalances to unload their own large positions.

The best strategy to utilize is to obtain the stock and place the orders within the last 3 or 4 minutes of trading, thereby minimizing your time exposure. Also the best times to utilize this strategy are during index rebalancings such as in the S&P and the Russell. Many index funds need to rebalance their portfolios at this time generating large imbalances.