Wealthy day traders make their money by putting from $10,000 to $500,000 in trading a penny stock over a few day period. One variety of the game is apparently to drive up the price of shares on hyped news such as happened to AUML, then abruptly sell it short. In this zero sum game, the person with the most money usually wins and the others invariably lose.
Another variation is the sucker game to sell a large block of stock in a company on good news. It appears to be about 25% what the investor intends to invest. Then, he or she buys back more of the stock with 75% of the remaining investment funds at a greatly reduced price and waits for the stock to go up. They can go on doing this until an even wealthier player enters the market and temporarily controls the price. Note here that no illegal short selling occurs, just smarter trades by better game players.
If you look very carefully, these stocks usually go below the normal loss of 25% triggering a stop loss order to sell the stock. You have to watch Level 2 quotes to see the patterns. Look at the bid and asked often by the same brokerage house to discover the trickery. It can be the same investor doing the buying and selling.
A third trick needs some unintentional help by the officers of a company. It goes like this. There is an announcement that a company is considering a major partnership with a larger company to obtain project financing. Naturally, the due diligence takes a lot of time. In the meantime, the stock drops on what appears to be corporate indecision. Impatient investors sold their stock in what appeared to be a loser, but was actually a big winner. Insiders then buy up the stock at bargain prices. This is the illusion versus reality game.
Please be smart investors. Remember, you often only have yourselves to blame.
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