You are in a business of buying and selling doodles. You have 3 major customers and there are thousands of small players that are speculating. One day in a short period of time all 3 major customers are giving you orders for 5000 doodles at top price. You fulfill their order with a contract that you will deliver the goods in a few days. Now you are short 5000 doodles. What do you do? You wait. The big players have done their purchase so you figure they are set for a while. Without any new buying orders the price starts going south. Now you start slowly buying your doodles at lower price from the thousands of doodle speculators. Would that work? P.S. The price will fluctuate to the level of the big order and bellow as you reduce buying when the price gets too high and increase buying when the price gets too low. Edit: 1. What should a very small speculator do in the above case to profit? 2. What tools can be used to detect the above when trading electronically? 3. Is volume important? (this is so I can get 100 pages out of this)
If the small speculators knew about the big orders, they would not be selling. The price would go up, not down. In that situation it would be so much more likely that the small guys would hold onto their doodles hoping to make you buy their doodles at a higher price because they know you are short. Its like when you these stocks where say the price is 10 dollars per share. A company comes in and says they want to buy most of the company for 15 bucks per share. The little speculators hold their shares for that 15 dollar price. They dont sell (except maybe a few if they think the deal will not go through)
What if the small speculators neutralize themselves? Some buy some sell, so they can't direct the price in a meaningful way. What if only big and sustainable orders can drive the price in a particular direction? In that case the above will work. The price will go down after the big orders because the small speculators will get tired of waiting and will starts selling.
I said that the small speculators can not drive price but then I also said that the price will go down because the small speculators will get tired of waiting and sell. The price will go down slowly as more and more of them join in. Also the price can go down with your help by selling more at the top. You already sold so much to the big players why not sell more. Also the small speculators could load up on these top levels but eventually get trapped in a tight range that can break down as the stops are hit. I did not want to go to all the possible scenarios of why the price will go down.