Photo Credit: Gianni
A few days ago, I was trying to buy a little bit of a defense company that I own for myself and clients. It was relatively inexpensive, and had fallen out of favor. Now, it's not the most liquid beastie on the US market, so I put in an order to buy 2000 shares, while showing 100 shares, offering to buy at the current bid of $25.50 while allowing purchases at up to $25.57, while the ask was at $25.65. I then shifted away from my trading application, and went to do other work.
After an hour, I went back to my trading screen, and saw that 1200 shares had executed between $25.50 and 25.57, but now the price was much higher, and by the end of the day, higher still. It is even higher now.
At the time, I took a look, and lo and behold: I got the bottom tick — the lowest price on that stock ever (for now). I also noted that I had almost all of the volume when it went down to the low price. But 1200 shares is small compared to the total trading in the name, and $30,000 is also a small amount of money. I concluded that it was a happy accident that I got the bottom tick.
I've had the same experience working at a hedge fund. I would occasionally get the bottom tick when buying, or the top tick when selling, and most of the time I ended up saying that it had to happen to someone — it was us that day. That said, the total amount of volume was almost always low near the top or bottom, so getting that versus a trade nearby was not worth that much.
To have a lot of volume near a top or bottom, you need two or more determined and anxious traders with large capacity to trade, a need for speed, and opposite opinions. That happens sometimes, but in experience, not that often. Near a peak, you would need a buyer anxious to buy a lot more NOW. Near a trough, a seller wanting to sell it all NOW.
Most of the time, large institutional investors are cautious, and try to minimize their impact on market prices — being too aggressive will likely give them a worse result than being patient. The exception would be someone who thinks he knows a lot more than the market, but feels that edge will erode soon, and therefore has to do the trade in full NOW.
