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DAET traders. Often head faking occurs around lunchtime. SOES traders used to joke that lunch hour head fakes appeared to be a game created to amuse market makers. On reflection, the head fakes were probably caused by the internalization of orders during the lunch break while the market was slow. Furthermore, after the NASD consent agreement precluding collusion, I wouldn't readily expect collusive head faking. The NASD and the market makers have already been chastised by the SEC for fixing prices and have agreed in a civil action to reimburse in excess of $1 billion in civil damages (in my opinion far too little). |
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Head fakes can be costly, but once again, just as in the wiggles and jiggles scenario, they are part of the business and overall do not have to be a significant negative in your DAET career. Licking wounds will not change anything because all of the trader's time and emotion is being focused on a losing position and many profit opportunities are being squandered. |
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Defensive Strategies Against Wiggles, Jiggles, And Head Fakes |
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To lessen the affects of wiggles, jiggles, and head fakes, most DAET traders try to trade only stocks that are very active with a relatively large float and capitalization. Active large-cap stocks, as they are known, such as Intel, Microsoft, CISCO, 3COM, etc., are much more difficult to wiggle and jiggle. They trade so actively and there is so much institutional interest that it is very difficult for a market maker to move them around or create any false illusions. |
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Perhaps the best way of dealing with wiggles, jiggles, and head fakes is to take advantage of the ECN trading where any trading entity can now interact with the inside pricing of Nasdaq stocks by placing competitive quotes and sizes that are displayed as part of the inside market. This practice impedes the market makers' ability to move stock prices without committing significant capital. In order to move a price the market makers have to fill all limit orders displayed on Nasdaq before |
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