To understand how operators fool innocent investors and make a killing themselves by playing with micro cap shares, let us take this example (I’ll follow it up with a real life example as well):
Sly Operator’s Name: Chulbul
Innocent Investor’s Name: Pandey
Stock: Dabang Ltd.
Chulbul owns 1,00,000 shares of Dabang Ltd., a small cap firm.
It is a long term holding but Chulbul wants to make money every now and then out of his rather large holding.
Chulbul knows well that all investors follow an age old adage that says “price action always follows volumes.”
Chulbul also knows that many investors keep an eye on stocks whose volumes are increasing and tend to jump in when they see a spike.
So, here’s what Chulbul does:
He notes that Dabang Ltd. is either holding steady or falling or in an uptrend or has not reacted to news, and there are no spikes in its average traded volume.
Here’s what he does:
Chulbul fills in a sell order at the going rate for 10,000 shares, and discloses 1000.
The quantity is picked up after some time.
Chulbul enters another sell order for 10,000 or 20,000 shares and discloses 10% of the quantity. He also enters a BUY of an equal number of shares (of his previous order) at Rs 1 lower than his selling price.
By the time the new sell order is absorbed, volumes spike up. Many investors looking at the volumes get excited.
At this time, our innocent investor Pandey gets all excited at the spike in volumes and he picks up 5,000 shares of Dabang Ltd.
Chulbul meanwhile keeps selling Dabang Ltd. until 1,00,000 shares are absorbed.
At this time, or sometime before, buyers realize that someone is selling out. Many buyers cannot afford to take deliveries or pay margins because they are day traders.
They panic. Pandey panics too.
Most day traders and those who do not want to hold the stock start selling out.
Dabang Ltd. falls by Re 1.
Chulbul mops up whatever quantity he sold, makes a cool Re 1 buck per share (net 93-95 paise per share after intraday brokerage plus taxes).
Even if Chulbul could sell and buy 40,000 shares, he would make a cool Rs 36,000+ in a matter of a few hours.
Even if he loses some paise per share, he will know that he has spurred interest in the stock and if he keeps up his game, he will make a bigger killing in a few days.
That’s cool money to make without taking a risk.
Now here’s a real life example:
Know that I am not accusing anyone of manipulating investors.
I am pointing out a transaction in which an investor bought and sold the same number of shares on a given day at different prices.
The following screenshot is from the NSE bulk deals page on 3 August 2017.
You will see that in this case, the investor incurred a loss of 6 paise per share on a transaction of 1,45,000 shares.
But that’s not the end of the story. It’s the beginning.
Now check the historical data of the same stock:
Here’s your proof:
AMD Industries volumes were hovering around 7,000 per day and the price was around 29 before operator/s got into the game.
The volumes per day climbed to 1,43,800 and then to 3,50,000 and then to 5,95,000 in 3 days.
The stock spiked from 29 to a high on 35.90.
Today, on 4 August 2017, the price has settled down to 32. I assume that by this time the operator would have made a large packet.
Please note that I am not accusing anyone, I am merely pointing out that this is how BSE and NSE operators can work to make easy money. There is nothing illegal in this activity because they will be paying taxes on market gains.
So, well, that’s it.. if you find substance in my post please share it with your friends so that they can safeguard their valuable cash.