Tricked Into Selling Based On Orderbook Depth

This stock I was watching (and owning for 3rd party) had moved up 70% yoy and also had a daily gain of 4% on no news. I looked at the order book and there was something like this

Offfer

200   @ 389.5

140   @  388

3900 @ 387

Bid

190  @ 386.

290  @ 385

200  @ 383.75

240  @ 382

The point being: What I perceived as reistance at 387. So I sold my position of 1k in two 500shs lots. I should have know when I got filled immediately on first sale that something was wrong. The 2nd lot was also hit as soon as I offered.

What I think in hindsight. There's a buyer of 35-40'000 shs who puts offers in to keep the rise in check (or reinforces 387 with say 2k shs), not letting it move by more than say 4% on a daily basis. 

And I was dumb enough to fall for it.... :S 

Maybe the lesson is: Unless someone is hitting decent size bids, and them not returning, then it's a good idea to sell. However to sell and not dent price or order book bid size is a bad thing.

Drive-By Strategy In Small Caps

Recently, I tend to approach trading small caps for the third party account as a drive-by shooting or a holdup. You need to come with speed and execute the trade plan as fast as possible. Maybe one could also compare it to robbing a jewelery store. You know the time it will take the cops to turn up once the alarm is set off. When you trade small caps in big enough size you always set off someones alarm, believe me.

Anyway. I say this because I knew this trader at Goldman who said that he had this hedge fund client who made his life hard by calling him, asking for a quote of 20k, 30k or 50k shares in stocks that had traded maybe that much on a daily basis. He'd either lift or give and then be gone. The trader at Goldman would never know is the client holding on, selling elsewhere, buying more elsewhere.... That hedge fund knew, that as few people as possible know what you are doing, the better. Because the other guy will always try and fuck you, by front running or short squeezing.

I also remark it because when you trade a small cap, or even midcaps, you have traders, market makers, or even the company itself whose playground you are suddenly "intruding" in. The traders or interested parties have a way of finding out via their contacts at banks, who is doing the buying. But it takes them a minimum of several hours or couple of days. So if you can be in and out, while giving the impression to still have an interest, that's better for you.

I remember reading a book; "An American Hedge Fund" whose manager often saw large moves against his position as soon as he'd finished buying or selling. That made me think: this guy was definitely being watched. And it really often is like that. The market isn't as opaque as people often think.

EURCHF - Caught On The Right Side Of SNB Intervention

So this is what intervention looks like on Euro-Swissie. And I was long. Thank you very much dear SNB. It was about time to be honest though!

Too bad I only had 1 lot. But 169,9 pips is fine. Especially as I'd just gone to my other PC to listen to music and was kind of anoyed that price was hovering around 1.4155, several pips below my entry.

I was thinking of selling actually. Then I saw the first spike to 1.418, I mean that was already 30 pips... but I walked over to the other screen and it was 1.428. I thought I'm looking at the wrong bloody quote. Then it was 1.43309 - OKAY, I'LL TAKE IT....

So nice start to easter. Lucky start. Not exactely winning Euromillions. But still :D PS: Not a april fools joke!

Here the stats:

Open price: 1.4161

Close price: 1.43309

P/L pips: 169.9

P/L USD: 1608.38

Open time: 01-04-2010 15:01:19

Close time: 01-04-2010 17:59:42

Winning, but still feeling like you lost

You're going to need to read Sundays post to understand this one.

That illiquid stock I bought 3x the average daily volume of on Friday traded zippo shares Monday. So my plan of getting the quick reaction was not materialising. I had left a decent size offer and bid (since Friday) in the stock with a spread of 2.8%. The cocky mini market maker put his shares in front of me both sides. I thought: "Whatever" as he only put 25% of my size on each size.

But in the market you often get paid for the risk you take. And Friday I took quite some risk when looking at how much this stock normally trades. Even though that bid and chart pattern signalled some serious buyers slightly below the market level at that time.

Today however the mini market maker and myself got lifted. I had around 40% of my position on the offer with a 2% profit. The next 40% I put at 4% profit and the final 20% at 5.5%. At the moment I have just 5% of my position open. So I've closed at a 3% profit (as good as, all I need to to is hit the bid with my remaining 5% size).

Funny thing is, now of course I'm annoyed that I put 40% at 2% profit instead of scaling it higher up. Then again yesterdays zero turnover prooves that this stock is a gamble regarding when volume will come. Could also be, that my decent offers, in this otherwise pretty much empty order book, attracted buying.

I still enjoy small caps though, cos you are acting in the old fashioned market, with small players, humans, not machines.

Small Caps & Me

Friday I got tempted into a position for an account I manage. The stock, a niche machinery maker with solid dividend paying trackrecord, was down over 5%. I have to add here, that I watch the most volatile stocks on a regular basis every several hours. Just a habit I've picked up to see what's moving quickly. I'd also recently seen a presentation of this company and they were saying some pleasing things about the potential in India.

So I have this stock that I'd be comfortable owning, down over 5% and a 3% dividend payout coming soon. I judged that the stock was just seeing a large seller interested in selling quickly. That normally is a bad sign alone. But this stock is very illiquid and 15minutes or so after a large'ish offer appeared at -5% a bid came in - matching the size of the offer - at -7%. I thought: Okay, there's interest down there. I checked it on a chart and saw that the -7% figure was where there had been support several times in past weeks, but it always bounced back up from -7% to 0 to +5% - so a potential move of 12%.

I decided to pick off half the offer and see if the seller would reload or offer some more a bit higher. I also put in a bid for the offer balance at -6% to see if anyone hits it and also a offer at -3% (that sometimes gets a seller to add some more sales into order book). No-one did hit my bid, and 30min later I bought the rest of the offer. 

The stock closed at -5% for the day.

I'm not sure what I'll do with it. My favoured scenario is, that it bounces back Monday of course, as there was no news out Friday to get it knocked the way it was. But I could be in for trouble if the general market sentiment is going to take a beating or if the seller just comes back with the same size day after day.

Will keep ya posted!

EURCHF +10.1pips

Open time: 23-03-2010 22:07:48 CET

Close time: 24-03-2010 12:43:59 CET

P/L USD: 94,39

P/L Pips: 10,1

Open price: 1,42738

Close price: 1,42839

I have to look at that small profit as something I can relate to day to day. So from that perspective my little bet on EURCHF filled my petrol tank and bought me and a companion a light lunch in the sun.

I was wrong with my recent statement, that only when SNB intervenes on EURCHF is it much to trade. It's had a pretty hard fall compared to what it did at the turn of the year.

At the moment headlines are way too negative on the EUR I feel. After all: the US and the UK are the ones with the serious sovereign debt problems looming over the 2011/12 horizon.

Some Ramblings - No FX Interests Open

I've been tending to a new pet project in the last days and only check the FX rates 10x a day. But I've found myself annoyed at missing a 150bp move on GBPCHF from below 1.6000 to 1.6150. 

Also been doing a few equity trades unrelated to my personal account in the past two months. Sad to admit that I have underestimated this bull run. I did increase exposure for the managed acc in the second week of feb, only to reduce prematurely the second week of march.  Now I'm going into dividend paying season underweight. Not a good thing.  Especially as the return I generated with the trading is only 2% or so higher than the expected dividend yields on the specific shares (4%-6%).

All the sovereign debt crisis issues seem to be melting away across the CDS universe, with spreads narrowing significantly. That contrasts with some action on FX:  My pet the swissie is still strong against the pound, but has bounced off the recent lows of 1.5930s to 1.6140. It's a wild ride that pair.  Also watching the EURCHF that is on track to take out multi year lows of 1.44. It's not a good pair to trade unless there's intervention going on.