Order Spoofing Pushes Stock Down 22% in 5-minutes transcript

What's up everyone? All right, in today's episode, I'm going to break down the leading gainers in the market right now. I'm going to walk you through my trades from the morning, and we're going to talk about order spoofing. We're seeing it again. Order spoofing is illegal. It's a manipulative practice of putting out big orders, not with the intention of those orders executing, but with the intention of influencing other participants in the market.

And so you could see order spoofing either on the offer where you see a big sell order up on the ask and they don't actually intend for their order to get executed. You know that because when it starts to fill, they'll cancel it and they'll move their order higher. So that order is just trying to create the impression of overhead supply, overhead weakness, sell orders. So buyers won't buy into it, right? So what's the motivation of having a big sell order like that?

The motivation would be that the person is already short the stock and they want the price to climb. On the other hand, an order spoof on the bid means someone showing a really big order on the bid and they want the price to go up. They want people to take the impression that that means there's some significant buyers out there and some real strength. So, we see that when someone already owns a long position and they want to send the price higher.

So, which side was the spoofer on today? They were on the sell side. Let's go ahead and jump onto the screen. I'm going to show you a recording from this morning on VBIO. This is the stock that was up um about 44% on the day. So, it was our third leading gainer at that time. We had CNTB, which was up a little bit more, LGHL, which was up a little bit more in NCI. So, VBIO's right here, fourth leading gainer. It's got breaking news today. 12 million shares of volume, 1.6 6 million share float and about 277 times higher volume today than its 50-day average.

And this is the chart. It's rallying up right here. And in this area, I decided to buy a dip, which is a micro pullback on the one minute chart. You can see on the 10-second chart, this little consolidation, and I was looking for the break through 420. So, I've already taken my position. I'll just go back to the beginning of this video here. These are the types of live archives that our members get to um watch. We've got hundreds of them.

So you could see my eye tracker. So I've got a little camera that tracks my eye movement around the screen so you can see what I'm looking at. So I bought 10,000 shares there and I filled an average of 408. It goes up to 415 416 415 and it doesn't quite break immediately over 420. So I was like that's not great. In fact, it drops back down here to 399. So then it pops back up to 404. So I'm like down 10 cents and I'm back to up 10 cents.

Was kind of like sideways here and I'm watching it. So, looking at the bid, looking at the ask, checking the And right there, right there. Do you see that order? Right now, we have a 200, sorry, uh, it's 250 shares is what it looks like, but you had 20. So, it's a 25,000 share order at 406. So, right now, the order is at 406. Wait, it just moved. Did you see that? Let's back this up. What we're going to do is we're going to back this up and we're going to slow down the video here.

So, I'm going to slow down the speed down to um half speed. And what you're going to see is that the order appears initially at 407. Then it drops to 406. It drops to 405. It drops to 404. It drops to 403. And you can see the order doesn't disappear. This is an algorithm that's doing this. This is a more sophisticated type of order spoofer. This is not something that a retail trader like you and I would really be able to pull off because of the way the order is moving in that um in that fluid motion.

So, we'll even slow this down a little bit more. We'll go to uh quarter speed just because of how quickly that order moves. So, it's the same order of 25,000 shares. It's going to appear at 407 in just a moment and then it's going to move to 406, 405, 404. Now, what what you know, what I know is that if I put out a big order like that, I would need to cancel and replace in order for it to move down. Now, they're using a pegged order type.

Pegged orders mean they're pegged to one price or the other. And rather than pegging to an actual penny price like 105 or 405 or whatever, they peg just simply to the offer. So, whatever the offer is is going to be the order. However, pegs only go down, not up. So, this is when they're on the offer. So, this seller, this spoofer is using an algorithm that allows them to peg to the offer as the price comes down, but they also peg as the price moves up.

Now, this is kind of unusual because, and this actually is what um is sort of the smoking gun that this is a manipulative practice because let's just think about this for a second. If the order right now is 406x47 and it's 25,000 shares right here, they're on the ask here. So if all of a sudden some buy orders came in and it went 24 23 22, well the order would should stay there and all of those shares get bought up until it goes to zero and then the price moves up to 408.

But instead, what happens is after a few orders go through, the order gets cancelled and moved up to to, you know, 23,000 at 408. A couple more orders go through, it gets canceled again, it goes up to 410. So, these spoofers like to keep the big sell order just slightly above or at the current market price. But when buyers start to come in, what we've been tending to see is that the order gets bumped out. Now, if the order executed every time you had um enough buyers, then this is just someone genuinely trying to sell shares.

And then we would attribute it maybe to the company using an underwriting bank, a investment banker who was is familiar with these more sophisticated order types and that it's the company that's selling the shares directly on the open market, which is which is certainly possible in some instances, but when the order moves up as well, that's a little bit more suspect. So, in this case, in any in any event, we're now at 40 uh5 and now we're going to drop down again 404.

You see it's 24,900, 24,800, 25,000. So, the order is changing around a little bit. We're at 403 right now. And this is on ARCA. We've got 25,000 shares, 25,100. So, now we pause for a moment. Now it's 402. And in this case, I did hold it longer than I should have. I wanted to see if it would hold at four because I saw there was a buyer there at 15,000 shares. And I thought, uh, well, maybe this will hold at four. And then it bounces back up.

Now it's 32,000 shares. There's a lot of sell orders going through here. No one's really wanting to buy because you've got this big seller on the ask. And this is the the challenge with sentiment in the market that when you start seeing these types of sell orders, you get nervous to buy and then as you get nervous to buy, you don't execute your buy orders. And then when you don't execute your buy orders, of course, what happens is the price goes the price isn't able to break out.

So we stop seeing breakouts. So it ends up that we have these stocks where everyone's sitting on the sidelines. it might have in another market ended up making a big move but everyone no one's afraid to take the first step and even if someone does take a step people are still too um nervous and then what will end up happening and that's classic for a cold market what will end up happen so I sold started unwinding it there and I'm all out of my position sold and I sold at the bid I just bailed out so what ends up happening during these cold markets is it's cold and cold and cold until finally you have a stock that surprises everyone and it just takes takes off.

Um, and you know, in spite of there not being maybe as many people buying the breakout, the thing goes higher. So, see, now the seller's back at 99. So, now they're holding it uh so it can't pop above $4. So, holding it right underneath four. And so, the problem here is that uh things stay cold because you believe it's going to be cold, it stays cold. You could actually extend this to the float of a stock if um you know if you have a a lowflat stock, let's say it's a 1 million share float stock, but the data was incorrectly added to the exchange or to the scanners for everyone and it says 100 million shares, then people are going to believe it's a 100 million share float and they'll trade it as such.

They won't be interested in it because of the perception. In fact, the perception can be in that example different from the reality. The reality is this is a 1 million share flop. This is the type of stock that could make a big move and that actually doesn't matter because people won't believe it can make a big move. And if they don't believe it will make a big move, they won't buy the shares. Shorts will be confident and it won't work unless there's someone behind the scenes that is a big enough player that they see through it. they recognize the opportunity and then they go ahead and capitalize on that um sort of uh disconnect in sentiment, but capitalizing on a disconnect in sentiment, you could argue that that's the same thing that short sellers were doing when they were trying to short GameStop.

There was a disconnect in sentiment there to the upside. The sentiment was really, really strong, uh but the fundamentals didn't support it and so that stock probably shouldn't have stayed up at those levels. So people start shorting it and next thing you know it goes from 50 to 100 150 to 200 to 300 to 400 500 right keeps going higher. So you do have to be sort of careful with that. Now in this case we do see actual sell orders getting filled on ARCA.

And so we've got this sell order that's sort of hanging out right around $4 a share. And then what ends up happening is we break down yet again. And we'll see I can bring this back up to regular speed now. So we've been in sort of this right underneath $4 window. And I think at this point you also uh no doubt have traders who are trading to the short side on this because they're clearly seeing the weakness and long bias traders are nervous to jump in.

It pops back up here for a minute and part of me is like should I jump back in? But I'm going to get right back in where I got stopped out. I don't know. That seems kind of silly. I think maybe I'll just hold off. So I hold off and thank goodness I did because then look at this. Let's see. So all of a sudden let's just back that up 10 seconds. So then all of a sudden it breaks back below four and the bottom falls out.

It just flushes all the way down to 70, all the way to 69 there. And now the seller is back at the perfect time. Right? And now see how their sell order is moving again. So we'll back this up. We'll slow this down again. Oops. Not do that. We're going to go speed. We're going to go half speed. So, let's play this. So, he's at he was at 72, then 70, then 7 71, then 70. Now, he's at 66, 65, 64. Now, the order's gone. Now he's back at 61.

Now he's gone. So, this is very tricky stuff. And this is a huge rejection. Thank goodness I didn't jump back in it. Now I well so I did end up doing a dip here at 350. I thought after a 50cent flush that we would get a bit of a bounce which you typically would get and it's now even after looking at this more carefully that I'm like I shouldn't even mess with a stock that has this kind of thing going on because there's clearly a wall of sellers.

Now whether it's a combination and again it's speculation on my part because I don't we don't know what's going on behind the scenes. We don't know if that order spoofer is somehow affiliated with a company and they are actually selling shares and they're just being very aggressive in the way they're doing it. They're using these pegged orders in which case it's a combination of but that doesn't make sense because if you're selling for the company you want the price to go higher.

You don't crush it like this. So to me this is a this is a short seller. It's probably a naked short seller trying to suppress the stock which is exactly what we saw earlier in the year. And unfortunately, if you knock down a stock like this hard enough, you create this big red candle and it becomes a bit self-fulfilling. It kills it kills the stock. So if you've got enough and now the order's down there at 32. So if you've got enough shares to borrow and with naked shortselling, as we talked about when I did the interview with the former SEC attorney about this issue, we learned that they can basically create infinite shares and so they can just sell an infinite amount of stock.

So, if you end up selling millions of shares of volume, you're going to crush the stock and then the chart is so ruined, no one's going to buy it, right? No one's going to jump into this thing. And so, it ends up for them being a bit of a slam dunk. Now, you could say, why fight them? Join them, right? Trade to the short side. Well, you know, that's a consideration. Obviously, some people are doing it. For me, my feeling is that it's not worth the risk because what we have seen, as you well know, are stocks that pop in one candle 10 or $15 a share and all of those shorts get annihilated.

And I've been trading long enough now where I've seen enough instances where stocks have gone straight up. I've seen stocks go straight up to over $200 a share. And one mismove misstep on something like that could take out all of my career profit. I'm not kidding. Everything I've ever made. So, I take the approach and this is just this is just me and I'm being a little conservative here. Everyone's different. Some traders take the approach of letting their account balance grow and grow and grow so they can just take exponentially bigger positions.

So here's 1 million and then it's 5 million and then it's 10 million and then it's 20 million and they're trying to, you know, each time each year 5x so they make five and they want a 5x to make 25 but they get to 10. They want a 5x to get to 50 but they get to 20. And they're just going bigger and bigger and bigger until you have that one trade that does something like this. And all these years of hard work are gone.

I can't do that. I can't I cannot put myself in a position where that could happen to me. So, what I do is I have my account and I grow my account and then I take the balance down and I put that money over into a different account. So, that account is like zero, whatever. And then here it jumps up and then it grows slowly in the market. And then, so here then I grow it again and then I take the money out again. Boom.

And so then I jump up again here and then this keeps growing. This keeps growing. So what I have is a smaller balance in my risky day trading account and a growing balance in my long-term account that benefits from compound interest over the next 20, 30 years. This account will obviously increase in value. I mean there's no question about it. It's just going to keep growing and growing. So and I don't have to think about it.

I just let it work. If I was to start short selling, even with an account as small as, you know, $100,000, it doesn't have to be a big account, but with $100,000, I take one position on one of those stocks that goes from 5 to 50 in a in a halt and I can't get out. I can't unwind it, you know, I'm I'm smoked. It's 10x loss. I mean, you get one that goes to $500, you know, or higher, and we've seen those, too. So my feeling is that while yes, I could probably do well for a while, inevitably I would have that big loss.

And I don't trust myself um not to get caught in a situ. It's not even trust myself. I don't trust the market in small cap short selling that I wouldn't inevitably get caught in one of those days and that it would then have a devastating effect on my self-confidence. It would be such a I I just I I look, I'm telling you guys, I I've seen short sellers who have traded, you know, basically a a career, a decade or more in the market, and one bad trade wipes it all out.

That's a level of risk I can't tolerate. You know, look, when I was in my 20s, and the market was different then anyways, but when I was in my 20s and I got if I got wiped out like that, I you look, I could rebuild, but I'm at a point now where I don't want to start from zero. You know, I don't mind doing small account challenges and demonstrating what it's like to trade in a small account, but I don't want to literally go back to zero.

I just, you know, that's where I'm at. And that's the very real risk with short selling small caps. And I'm, you know, it's that's the reality. I'm not making that up. That's the truth. Let's just check Jag X. Do you recall Jag X from last week? Literally last week. Now, this stock, in spite of the market being cold, it this thing went from $3 a share to 60 bucks. I I don't even, you know, I'm beside myself. I'm beside myself and I'm on the sidelines.

I didn't take any trades on it. But there are short sellers who absolutely got completely annihilated on that move and it makes no sense. So in any case, right now we're getting a little bit of these one-hit wonders like RTO uh was it retox where you you are getting a stock that sort of is randomly popping up and you're getting a big move. This one went from like 50 cents to 20 bucks and then came all the way back down to 12 cents.

So, you know, at the end, you know, shorts were right, but um but for right now, sentiment is not strong enough. Um and so there's two ways that this cycle can can break and can end. The first is you have a company that has just such good news, it's undeniable. Even I mean just everyone can see it and it's like, "Yep, this is amazing news. Great. I'm going to jump on this thing today." So, that's number one. Number two is you have a stock that um shorts underestimate and that the behavior is controlled by insiders.

Usually it's insiders and those are usually foreign listed securities cuz it's you're not supposed to do this stuff. And they're pushing the price higher. They have a motivation because they own so many shares to just pump the stock as high as they can. And because it's a small float and it's highly controlled, they're able to manipulate the price and push it up. Now, you know, again, you still have naked shortselling, but uh which has a real impact because those are real sell orders going through the market.

So, you know, you you still have this issue, but if the stock already had a very low float and the inventory of shares available to borrow was already very limited, then that's that would put a damper on how many shares could be sold in the open market. So, those are sort of your two scenarios. really really good news or you know one of these foreign listed companies that just blows the roof off and explodes but those are also hard to trust because those are kind of like one hit wonders.

You get it and then you don't get another one. So it's hard for that to really create a spark of momentum I'd say in this market because it's not as predictable. And and then the third I suppose would be that we get um you know that that news catalyst that gave us that one big move becomes a theme and then you know it's a catalyst that's like uh you know a company gets a contract to do lunar data centers or whatever mid-orbit data centers and then that stock goes up like a thousand%.

And then another company's like, "We also got a contract to be a vendor, you know, for this development." And their stock goes up 500%. And they get another one and they're like, "We're involved, too." And their stock goes up 700%. And now the theme is, man, the next stock that puts out a headline on low orbit data centers that's going to go up at least 100%. And now you've got a theme that you can work with. And those themes can last for months.

Uh right now we're in between those themes. And after a really hot summer, you know, things have cooled off a bit. And the problem with the hot summer is that as hot as it was, it ended with a lot of Chinese stocks with absolutely no catalyst going up 500%. And a lot of those became a big win for short sellers because they had no news. There was no reason for them to go up and it was just sort of, you know, they were up on I don't know, you know, speculation.

And so the shorts got a big cushion from some of those reversals. And then that gave them the conviction to start getting more aggressive on anything popping up. And then with that um you know shorts um start to size up, get more confident, longs start to get cautious and nervous. And now you see how the feedback loop starts to go the the pendulum swings. And this is what trading has always been. Oh, by the way, my P&L for today, I am red $452.86 86 cents red on VBIO, red on LGHL.

Um I it's whatever I like, you know, I I kept it in check today. Uh so this is fine. I I'm would have preferred to be a green day, but um break even would have been next best small loss, tolerable. It's not a big loss. So anyways, that's where I sit today. I'm kind of keeping myself on the bench. Um you know, and I I got to wait to see a little more some more signs of life before I start taking risk. Otherwise, I'm just I'm burning money.

I'm just wasting money. There's no point. It's like, you know, I'm thinking of like The Deadliest Catch, you know, some of these fishing shows or whatever. And if there's no signs of life, there's no point in throwing out all your pots cuz you know what you're going to do? They're going to come up empty and you're wasting time, money, fuel, everything else. So, you better just scout out, kind of find where where things are happening.

And if that means waiting, it's that's better than the alternative. Neither are great, but one is is, you know, it's the lesser of the two. So, anyways, with that, I'll remind you as always that trading is risky. My results aren't typical, and there's no guarantee you'll find success whether you trade with me or you learn on your own. The good news is that when you learn from me, you're learning a strategy that someone else in the world, which is me, has actually found a high degree of success with.

It's not a guarantee it'll work for you, but I think it's a good place to start. So, check out the twoe trial. There's a link pinned at the top of the comments and in the description. You can check that out.