Hello! Today we are going to be talking about different trading strategies seen on WMIH Corp. (NASDAQ:WMIH). The company announced yesterday its merger with Nationstar Mortgage Holdings Inc. (NYSE: NSM). The reaction of the market was astonishing.
Have a look at the chart of WMIH:
We will not be adressing the financial statements of WMIH. We want to talk about trading today. In particular about what happened to the stock price in the one day chart.
The share price oppened at $1.30 and declined to as down as $1.18.
The reason for this?
First of all, many individuals runned to sell their shares in the market. The profits have been faboulous, thus it made a lot of sense. Their sell orders pushed the market down. That’s what people who see the stock chart can figure out.
But, that was not all. Traders, like us, who were in front of the order book could see that there was another reason. Algorithmic traders had been operating on the stock. We don’t really know for what reason, but, they wanted the price to go down.
How did they do it?
We could find several strategies:
- Spoofing Orders: they placed a huge amount of fake orders at the level of $1.26, $1.28, $1.29 and $1.30. It was not fair, but that the game is like this. The reaction of the market was obvious. Traders did not want to buy since those crazy orders could stop the market from going up. What did happen? The market went down.
- Send orders and delete them: Some algorithmic traders also sent orders for a very short time before deleting them. Later, we will show an algorithm that does it.
- Somebody acquired a large amount of stock right before the close. We don’t really know why, but they did it.
Was there an opportunity?
Yes, we believe that a short position on the stock was a great idea. Traders usually place short orders before the spoofing orders.
If they can sell they know that the market will not go above that order. Thus, they short sell and wait for the market to go down. It takes some time, but it can be extremely profitable for proffesionals.
The following is an example of the algorithm that these traders utilize. We will not be explaining how to code it. You have a lot of materials in previous video tutorials to learn it by yourself. The idea is to show the type of parameters that you need. If you need some more help you can always send us an email to firstname.lastname@example.org.