Creating Scarcity in Intraday Trading

[daveyjones 11]

You instantly buy up a large number of shares and sit on them. After an hour or so, the decrease in supply drives the price up slightly, at which point you instantly sell all your shares and make a modest profit.

 

It seems like a fairly straightforward strategy to me. I realize that such an action would decrease the liquidity of the stock, but traders with long-term strategies wouldn't care about small intraday fluctuations.

 

I realize it's an elementary idea, which is why I want to get some opinions from more seasoned traders.

[Simple 10]

When you are buying them (not instantly or you can't buy enough to move price) the price rises forcing you to buy them higher.

 

Then it sags back a little.

 

When you sell this large number of shares price falls while you are selling.

 

Then it sags back a little.

 

Result: Nett commissions you lose money.

[daveyjones 11]

I think I understand what you mean. There's no such thing as instantaneous; the price will rise as you buy the shares.

 

So is there a strategy that works in which the buyer creates scarcity in one form or another?

[SIUYA 11]

Look up what the Hunt brothers tried to do in silver

[daveyjones 11]

Look up what the Hunt brothers tried to do in silver

 

Thanks for the comment. I did look into the Hunt brothers. From what I read, I don't think that their reasoning was flawed. If a man wants to buy up all the silver in the world why shouldn't he be able to, as long as he's willing to pay the market price? Nobody has a right to own silver - only the person willing to make an honest trade.

 

The only reason the Hunt brothers didn't make money on their silver investment is because the federal government directly targeted them and forced them to sell. They didn't anticipate having to sell their silver with a gun to their head.

 

"A government big enough to give you everything you want is a government big enough to take from you everything you have." (Gerald Ford)

 

It also didn't help that several COMEX directors had short positions on silver.

[SIUYA 11]

The only reason the Hunt brothers didn't make money on their silver investment is because the federal government directly targeted them and forced them to sell. They didn't anticipate having to sell their silver with a gun to their head.

.

 

I think the real reason they did not make money on the the trade is that they were the only buyers and when it came time to sell there was no one left to buy.

 

Blaming the government is a bit like saying the casino only stopped me playing because I did not have enough money to keep increasing my bets enough to bankrupt them.

 

Beyond all the conspiracy theories and sometimes poor government policy the governments role is ideally to limit market manipulation and provide for a fair and orderly market when the participants cant or wont do it themselves.

 

But I think you get the jist of what I was saying based on your original questions.

[daveyjones 11]

Thank you so much for your comments. I do understand your point: If you create scarcity, you will simply drive away buyers until the price comes back down to reasonable levels.

 

However, there are many different kinds of buyers with different strategies. Take the following example:

 

Let's say a stock is at $10.00 per share. You buy up a large number of available shares, driving the price up to $10.10. At this price, day traders may not be inclined to buy, but other traders who are looking for long-term investments won't care about such small intraday fluctuations. They are looking for much larger growth over much longer periods of time. So, despite the slight increase in price, they buy anyway. Since there is still demand and smaller supply, the price continues to rise to $10.20. After waiting some time for the price to rise, you sell.

 

This is much less extreme than cornering the entire market and it still seems reasonable to me.

Edited June 11, 2010 by daveyjones

[SIUYA 11]

I will change your wording a little to see the flaw in what appears to be a somewhat logical argument.

 

Let's say a stock is at $10.00 per share. You buy up a large number of available shares, driving the price up to $10.10. At this price, day traders may not be inclined to buy, but other traders who are looking TO EXIT long-term investments won't care about such small intraday fluctuations. They are looking for much larger growth over much longer periods of time ELSEWHERE. So, despite the slight increase in price, they SELL anyway. Since there is NO demand and GREATER supply, the price FINISHES to rise to AND FALLS AGAIN. After waiting some time AS THE PRICE FALLS, you sell.

 

See my point.

You need more than a nice fantasy. Either all you are doing is relying on the greater fool theory. That is that so long as there is someone to follow you in the price will go higher.

or a random selection of entry and exit points.

Now clearly momentum trading works this way, but you need setups, triggers etc;

Edited June 11, 2010 by SIUYA

[daveyjones 11]

All very good points. Thank you!

[earthy8 10]

"You instantly buy up a large number of shares and sit on them"

Guess what!

Have you ever imagined /calculated how large this "crate of shares" can be,to cause a change in price?

Stock market,online trading in electronic form is still the bread/butter of so many traders and investors,even today!