Replies to post #25847 on lowtrade

[lowtrade]

I have never hear of that broker rule. But No I was not posting about broker restrictions.

I was posting about amount of stock needed to move the price in the direction of your order and specifically how hard it becomes to sell over 10% of the daily volume in one day, without hurting yourself, in a low volume stock. I don't know how to explain it differently.

OK lets try this.

When hedge funds or institutional fund managers decide to enter a new company or exit an old position. They may have 100 million shares. The company stock trades 10 million a day. Obviously they can't exit all at once and if they start selling 1 million a day blocks, the fact strong selling is hitting the stock, will cause the price to fall.

This price fall causes them to lose money in increasing amounts every day they block trade 1 mill. So they will sell some pre market and some post market and also break their sell orders up in smaller orders. Trying to use stealth during exit.

If a low volume stock pops on emotion and you buy 10% when volume is high. Say before it had 100k a day and during the few day pop it traded 1 mill. You bought 100k. The emotion ends in 3 days and the speculators rush out in a 3 day dive. That dive comes because large selling creates large price moves, just like the way up. Then everything is back to normal with 100k volume. In this case, which you see very often in low volume stocks makes it very difficult to unload that 100k held at the same level of gains at the top and you see your gains unattainable as expected.

In large volume stocks this does not happen. The liquidity existing prior to the run, allows exiting during the dive. Say the stock has 1 mil traded daily and during the few day pop it trades 10 mill. You still can afford 100k, that now is no where near 10% of the daily volume and during the dive, selling 100k all at once, near the top is NO problem!!!