Painting the Tape

Any trader or investor must consider the use of stop loss orders.  Since circumstances may arise that suggest the original decision was wrong, one must be willing to exit the trade at some point or to face major losses.  This is an element of trading discipline.

Placing a standing order risks a situation, especially in futures trading, where locals "run the stops."  If trading is slow, active floor traders may probe for and find the stops.  Everyone is looking at the same charts, and the placement of stops in a logical fashion may make one a victim of a small run, followed by a bounce back to normal levels.

Placing a "mental stop" can work if one is always watching.  Even then there is the problem of painting the tape.  The recent controversy over Jim Cramer’s comments, well documented by Trader Mike, have called attention to the dilemma.  Cramer talked about the potential for hedge fund manipulation of individual stocks and even the entire market, through aggressive selling, put buying, and influencing key media figures.

While we have no opinion on the Cramer controversy, it is timely to take note of a broader and similar question related to exchange rules, ETF’s, and selling on downticks.

Scott Rothbort wrote an excellent piece on this topic, now available on his blog, one of our featured sources.  The article may seem long and detailed, but that is because it is carefully written and covers all of the bases.  At "A Dash" we hope that exchange rulemakers will act to protect individual investors.  The markets carry a message, but we should hope that the rules make that message clear.

We hope that Scott’s views, reflecting his broad experience and wisdom, attract attention.

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  • paulin March 29, 2007  

    CXOadvisory has an interesting piece on PCE & stock market relationship. Also Jeff I noticed your change in stance towards the market in the tickersense poll…Btw its great blog..keep blogging!

  • oldprof March 29, 2007  

    Thanks for the comment about CXO, a great site that we always follow. We will follow up on their post, completely consistent with what we found in our research on the topic.
    Regarding the TickerSense sentiment poll, we follow our timing model for the time frame they have in mind. I am wondering about how to integrate our shorter-term calls with our general market perspective, which is the main theme of the blog.
    Our vote this week will move from bearish to neutral. Vince’s timing model caught the big upswing from August, but we shifted position in TickerSense when the model changed. It helped up with our accounts, since we aggressively hedge when it has a short signal.
    Thanks again for your comment and the pointer.

  • Squid Options March 31, 2007  

    Dont bet against the house.

    Friday was a difficult day for me. The market seemed to irrationational in a logical way.
    Last week when Cramer came and talked on video about how hedge funds manipulate the market, people seemed shocked. im Cramer described in a Wall Street Confidenti…