Kardec Trader explains how short sellers get trapped when they place stop-loss orders at pre-market highs. A stock gaps down 75%, shorts pile in at the open, then the price briefly breaks above the pre-market high to trigger those stops before reversing down, forcing panic covering that profits the 'riggers' running the move.
So let's say this is the pre market high. It fades off before the open. It's still a 75% gapper at the open. So that would probably meet most people's criteria for a short. So they would short the open right here. And let's say it starts fading a little bit and they're thinking, okay, we're in the green, we're looking good. But then, oh, it starts reclaiming. Now what do you do? Right, it's 10am it's reclaimed the open, and it's approaching the pre market highs. And if your stop is right here at the pre market high, a lot of the times the patterns will look like this. It'll clear the pre market highs just briefly and then immediately come crashing back down. Because the riggers want to extract the most amount of liquidity they can out of the market. And they're not going to do that if they just fade it down all day. They need to get some kind of panic out of the short sellers because these are short, crowded stock. And the only way to get that liquidity and the force that covers is to break the pre market highs.
