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I have at times bought thousands of shares of a stock but every time it seems the share price dips right after my purchase. Is this just bad luck or part of the process?

  • Hedge all markets. Don't chase stock price. If you want a stock, you can sell a Put against it, get assigned the stock. Then you get the stock at the strike price minus the premium you received. – Optionparty Jan 3 '14 at 23:35
  • It happened to me on 2 occasions, both when trading penny stocks. It's not just the guy remembering only the bad or only what he wants to. 2 x $500 lots, one down $100, one down $200, on the same day I purchased, as a direct result of my successful buys. – Gordon Pearson Jul 5 '16 at 6:21
  • Did you buy more after these drops? If you thought it was underpriced before (and that was why you bought it) and there was no change in the fundamentals (otherwise you would have said so in your question) then you should have thought it was even more underpriced after the drop. – David Schwartz Dec 19 '16 at 10:02
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Any time a large order it placed for Buy, the sell side starts increasing as the demand of Buy has gone up. [Vice Versa is also true].

Once this orders gets fulfilled, the demand drops and hence the Sell price should also lower. Depending on how much was the demand / supply without your order, the price fluctuation would vary. For examply if before your order, for this particular share the normal volume is around 100's of shares then you order would spike things up quite a bit. However if for other share the normal volume is around 100000's then your order would not have much impact.

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    Unless a stock if not traded actively or there are no market markers I question if thousands are enough to hit this effect. – Ian Sep 18 '15 at 9:38
  • @Ian Agreed. It all depends on the volumes. – Dheer Sep 18 '15 at 10:41
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You say:

Every time it seems the share price dips.

Does it? Have you collected the data? It may just be that you are remembering the events that seem most painful at the time.

To move the market with your trade you need to be dealing in a large amount of shares. Unless the stock is illiquid (e.g most VCT in the UK), I don’t think you are dealing in that large a number; if you were then you would likely have access to a real time feed of the order book and could see what was going on.

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    Alternatively, you may be buying' stocks that have been running up and are ready for a correction... a short-term illustration of "past results do not predict future performance". – keshlam Sep 18 '15 at 16:17
  • @keshlam, very likely if the drop comes weeks after buying it, not if the drop comes within minutes – Ian Sep 18 '15 at 16:34
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    Still could be... but I agree that this is probably memory bias rather than real, unless the OP is jumping on day-trading randomness thinking it's a trend. – keshlam Sep 18 '15 at 17:12
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Unless you are buying millions of dollars worth of a stock at a time, your transaction is a drop in the bucket, unlikely to have any noticable effect on the stock price.

As Ian says, it's more likely that you are just remembering the times when the price dropped after you bought. If you keep careful track, I suspect you will find that the price goes up more often than it goes down, or at least, that the stocks you buy go up as often as the average stock on the market goes up.

If you actually kept records and found that's not true, the most likely explanation is bad luck. Or that someone has placed a voodoo curse on you.

I suppose one could imagine other scenarios. Like, if you regularly buy stock based on recommendations by well-known market pundits, you could expect to see a temporary increase in price as thousands or millions of people who hear this recommendation rush to buy, and then a few days or weeks later people move on to the next recommendation, the market setttles down, and the price reverts to a more normal level. In that case, if you're on the tail end of the buying rush, you could end up paying a premium. I'm just speculating here, I haven't done a study to find if this actually happens, but it sounds plausible to me.

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You might consider learning how the "matching" or "pairing" system in the market operates. The actual exchange only happens when both a buyer and a seller overlap their respect quotes. Sometimes orders "go to market" for a particular volume. Eg get me 10,000 Microsoft shares now. which means that the price starts at the current lowest seller, and works up the price list until the volume is met. Like all market it trades, it has it's advantages, and it's dangers. If you are confident Microsoft is going to bull, you want those shares now, confident you'll recoup the cost. Where if you put in a priced order, you might get only none or some shares.

Same as when you sell. If you see the price (which is the price of the last completed "successful" trade. and think "I'm going to sell 1000 shares". then you give the order to the market (or broker), and then the same as what happened as before. the highest bidder gets as much as they asked for, if there's still shares left over, they go to the next bidder, and so on down the price... and the last completed "successful" trade is when your last sale is made at the lowest price of your batch.

If you're selling, and selling 100,000 shares. And the highest bidder wants 1,000,000 shares you'll only see the price drop to that guys bid. Why will it drop (off the quoted price?). Because the quoted price is the LAST sale, clearly if there's someone still with an open bid on the market...then either he wants more shares than were available (the price stays same), or his bid wasn't as high as the last bid (so when you sale goes through, it will be at the price he's offering). Which is why being able to see the price queues is important on large traders.

It is also why it can be important put stops and limits on your trades, een through you can still get gapped if you're unlucky. However putting prices ("Open Orders" vs "(at)Market Orders") can mean that you're sitting there waiting for a bounce/spike while the action is all going on without you). safer but not as much gain (maybe ;) ) that's the excitement of the market, for every option there's advantages...and risks... (eg missing out)

There are also issues with stock movement, shadowing, and stop hunting, which can influence the price. But the stuff in the long paragraphs is the technical reasons.

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