This didn't happen to me, I remember reading it on the MSN board by a regular poster who was understandably shaken and livid. On August 25, 2000 there was the great EMLX hoax, where it traded between a (split-adjusted) range of 130 at the high, 43 at the low. Really. This trader was in long around 100 with a stop at about 95. The hoax kicked in, the stock collapsed, was halted, his stop was finally filled just before it reversed, right around 45, so he had slippage in the vicinity of 50 pts. I later heard about quite a few EMLX tragedies that day.
Some of these posts have raised a question I have had lately. Is it really that much more dangerous to hold a stock over night? It seems that some of the halts that happen during the day are just as devastating as overnight gaps. Maybe it's all of the smaller, more common gaps, that scare day-traders so much.
I flip positions at the H/L of the day (via stop), and normally get a good pop from all the stops going off. But lately everything is faded so my trades are just entries into hopefully longer term positions (hours to days). My stops are usually pretty wide, so I ride out all the fading. Getting short in the NASD is easy with the semi-liquid stocks I follow, haven't had the same luck on the NYSE though. So I stick mainly to 700K+ a day NASD stocks.
It's just a question of trading time frames. Most daytraders have pretty tight stops so they get in and out of the market quickly. Swing traders tend to have slightly wider stops and can handle the overnight gaps that are somewhat typical on volatile stocks. I think the problem is that some traders don't realize that stocks can be halted intraday and then have huge gaps. Or what a really fast market can do to the price. I had one trade about 5 years ago where the stock was halted for the earnings report. Their earnings were significantly better than the expectations or whisper numbers. I was long and pretty happy when I heard this. Unfortunately, when it re-opened, it gapped DOWN about 12 points and since everyone was now selling, it slipped another 2 points before I could get filled. This is one reason why position sizing is critical to long term success. You have to make sure that even these extreme events won't knock you out of the game.
a year or so ago, still in rookie mode...I tried to bottom fish EMLX on a day it gapped own hard....i don't remmeber the exact execution...i think the size was 500shrs, and I know in about 40 seconds I lost about $2000...and I sold right at the bottom! it started to rally, i got back in, and i think i finished the day down about $900... that was bad for the psychology at the time....but it was a lesson learned
Eldredge: I agree w/ your skepticism that overnight risk is more dangerous. I think that daytraders take on just as much risk as swingtraders do because of one reason: daytraders have to take on a lot more leverage to compensate for their tiny profit targets and high commission costs. Let's say Sam Swingtrader does 1,000 shares per trade and Dan Daytrader does 10,000 shares per trade. Both of them are in the markets on a constant basis and both have the same size accounts. Here is the thing: one point of intraday slippage is just as bad for the heavily leveraged Dan Daytrader as ten points overnight is for the less leveraged Sam. (1 pt X 10,000 shares = -$10K, 10 pts X 1,000 shares = -$10K). The point is, shock events are what kill traders and they are the reason for supertight money management. Because daytraders have to use so much more leverage than swingtraders do, they are much more exposed to price shock risk- leverage is a two edged sword if blowups are not factored in. In fact, I would argue that daytrading is even more risky than swingtrading because you typically aren't as balanced as you are when swinging. If I have both longs AND shorts on overnight, as is often the case, then my risk exposure to a market shock is reduced because some of the loss due to a market shock can be canceled out by gain. And during the course of the normal day, when shocks are just as likely to happen as overnight, I am going about my business with less leverage overall then a daytrader, and thus less chance of being carried out. Just my personal $.02
Entered KANA,last 12 months,daytrade,nice uptrend,had 3% profit ,1100 shares.Exit with usual market order;market order took over 4 MINUTES.You might have guessed it filled at low of day! --------------------------------------Main lesson,learned from personal watching charts;Unless you re a scalper ,might want to think about taking profits,not entering a stock at a 8%daily gain or so.Even with a fast mover like KANA,thats absurd fill time-average {SEC} market order time is 3 seconds [500 shares] to a minute or more,block trades.................................[Active Trader mag]Probably includes absurd fill times like mine,but law of averages is in our favor.
January, 1999 I buy 3 puts at $3 1/2 ($1050) at the money on some internet company (don't even remember which - maybe LCOS) prior to earnings coming out the next morning. They miss by a bunch, more than I expected. Yippee! Opening of the option is very delayed (like 15 minutes) as the stock is totally tanking (option MM runs and hides). I put in a limit order to get out, and change it a few times in the range of $10-$12 as the stock tanks and then starts rebounding. The option finally opens at around $11, but because of the multiple changes, Waterhouse gets screwed up, and I can't get a fill, and the stock keeps running up. By the time I get someone on the phone to work it out, I get out of the options at 4, winning $150 less $60 commish, instead of $2K or so. How's that for slippage? :-( (Unfortunately, I had a very small account at the time, or I'd have just locked in the profit with stock. Looks like it was a 90 strike option, and I didn't have the $13K initial margin needed to buy the stock).