Wednesday, April 22, 2015

OK, now I understand what a flash crash means - LIQD

Update: 4/30/15. This post is mostly about LIQD in my trading notebook, but occasionally I will take a look at other large drops and surges. Twitter dropped roughly 25% because of an earnings post and trading was suspended at their request. I need to rethink all these powerful Wall Street computers that can cause so much havoc.

Update: 4/22/15 This post is about a very rapid drop of a single equity, miniscule in comparison to the real Flash Crash. Turns out that was the result of one man manipulating the market. From the DOJ post: "Navinder Singh Sarao, 36, of Hounslow, United Kingdom, was arrested today in the United Kingdom, and the United States is requesting his extradition."

Recently, I decided to open a position in Liquid Holdings group. This is discussed in detail in the Ts chapter of my trading notebook; look for the May 14 2014 entry.

Whenever possible I use limit orders. This is for two reasons to get a slightly better price if I get lucky and also because I am often making trades at night from Kauai and the market is long since closed. I set a limit for LIQD  for 300 shares limit 1.85 when it last closed at 2.30. I always use Good Till Cancel (GTC), since I have a fire and forget mentality for small purchases.

Well a funny thing happened on the way to Wall Street and to be honest I do not totally understand it, but LIQD released a bunch of new shares at 1.25. Now we are only talking $600.00 or so, this was not a big position for me like say, IBM. But still, when I read the press release I expected to find myself down 40% or so.

Enter the LIQD flash crash. In the picture below, courtesy of Google finance, you see the vertical drop. Nobody died and left me smart, but when I see this pattern, I assume it is all those supercomputers and high speed trading on Wall Street.

There is an ancient adage that God protects fools and small babies. So, I am giving thanks. Here is what I think must have happened. In the screen shot below, the bottom LIQD is the original limit order for 300 shares @ $1.85. As we see, it settled at $1.30. What must have happened is as the drop started, it hit 1.85 which triggered a market order for 300 LIQD and by the time that went through the price point was 1.30.

Now we all know the famous saying, I can quit anytime I want to, but I don't want to. While the price was showing 1.25 I put the top order in for 500 more shares and ended up getting a price of 1.26. Now little of me with $1037.90 in the game after I include the commissions isn't all that concerned about buying a market order at 1.25 and having it end up at 1.26, but if I am Warren Buffet adding to my Wal-Mart position, I bet it is a big deal.

So, I have a lot to learn from this experience, but wrote it down in my trading notebook so I can ponder it.

1/8/15 They have dropped to .30, but went up 13% today. I think that counts as volatile. Oh well, it is a small stake and hopefully I will learn something.

4/22/15 Be interesting to see if they can turnaround. Here is what they are trying. Currently trading at .25.