hosSA czy BESsa

In exchange-traded markets, do you believe that stops have a tendency to get picked off?
As you know, I do very little trading on exchanges with trading pits. The vast majority of my trades are done either in the interbank market or on the Philadelphia Exchange, which uses a specialist system. However, in answer to your question, I can teU you a story about a fellow who was at Salomon in the late 1980s. He had been trading a market that had gone into a narrow range, and trading activity had dried up. During this period, a lot of stops had built up right above this trading range. One day, this trader's clerk on the floor calls and says, "Listen, the talk is that tomorrow [a day on which the liquidity was expected to be substantially below normal because of a holiday affecting the cash market] they're going to gun for the stops
above the market." At that point, the stops were relatively close-about 40 or 50 ticks higher. The next day, this trader's plan is to sell the market heavily once the stops are hit, because he believes such a rally would be artificial and that the market would be vulnerable to a subsequent sell-off. During the morning, the market trades sideways and nothing happens. Then around 1 P.M., prices start to move-down.
You did say that the stops were above the market?
That's right. Anyway, the market moves down 50 points, 100 points, and within a few minutes the market is down over 200 points. What happened was that the floor traders went for the stops below the market, which were 200 points away, instead of the stops above the market, which were only 50 points away. The reason was that everybody was ready for the rally to take out the stops on the upside. Therefore, everyone was long, and the direction of greatest price vulnerability was on the downside. During the sharp break, my friend realizes that the market is way overextended on the downside. He screams at his clerks, "Buy 'em! Buy any amount they'll sell you. Just buy 'em1 " He was bidding for hundreds of contracts between 100 and 200 points lower, and he was only filled on fifty, even though the market
traded down over 200 points, with a couple thousand lots trading at those levels.

What happened to his bid?
You've obviously never traded on the floor of an exchange. In a trading pit, it's possible for the market to trade at several different prices at the same moment during periods of rapid movement. They were looking right past my friend's floor brokers, who were bidding higher. It was a fast market. [When an exchange designates "fast market" conditions, floor brokers can't be held for failing to fill orders that were within the day's traded price range.] A fast market gives the floor brokers a special license to steal, above and beyond their normal license to steal

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