How many times have you done your market analysis, entered your trade, set your stops and your targets, and then watched as your stock moves exactly as planned. How good does that feel? You bought a support level as it was being retested, the Dollar was weakening and market internals showed underlying strength. The selling dried up and volume came in as the stock bounced hard off that support level and closed strong at 36.00. You held it overnight looking for follow through. The next morning, the stock is looking up 2 points just under strong resistance at 38.10. At 9:25 EST, satisfied with your gains up there you offer out your stock at 38.00. It opens at 37.88 and trades up to 37.95, fluctuates around 37.90 and then trades up again , 37.94, .96, .98, 38.00. YES! 38.00, 38.00, 38.00. Ok, where’s my audio signaling my fill? 37.95 Damn…I didn’t get it off, 37.98, .99, 38.00 again. Ok, Ok……. WTF? And then 37.90, 37.85, 37.80, 37.70, Shit Consumer Confidence just hit, didn’t realize it was 10:00AM already. Sold at 37.50, ahhh, missed it. Damn, 37.00, 36.50, 36.20. F$Ck, Sh!t, P&ss, is heard as a cup of coffee gets knocked across the room! The whole f#cking profit gone. Just for a damn penny. Again!! That’s me, King of the f&cking penny.
Has this ever happen to you? Well I have news for you. It ain’t just you. You’re not The King of The Penny! Many have laid claim to that title. It’s happened to every single one of us. And it will happen to all of us again too, and again, and again. Unless we decide to use market orders 100% of the time, but then there’s the whole rebate thing and…well that’s another post. But how would you like to reduce the # of times this happens? That’s reduce…not eliminate. Eliminate would be impossible. But if you could reduce it by a significant percentage that would save a lot of stress, not to mention $ ….& coffee.
A little history, back in the days before electronics hit Wall street, a specialist on the exchange floors would keep a book of all of the public’s open orders for each of his stocks. It was simply a piece of cardboard about 3x5, the size of the order tickets that brokers would leave with the specialist clerks when they weren’t executable immediately, orders that were ”Away from the market”. The clerks would file them face up on either side of the cardboard, sells on one side, buys on the other, continuing down and up in price order on each side. Orders with the same price were placed by time of entry at that price with the oldest showing first. On the top shown order at a particular price the clerk would write in the upper right corner of the top ticket, the total amount that was bid for or offered at that price. This allowed the specialist, when asked “ How’s Crystal ” (COR, Crystal Oil), to know exactly how much stock was bid for and offered at each particular price. He’d reach into his rack, pull out COR’s cardboard, and quickly give a quote, “ 37 5/8 – 7/8 4000 by 2700” he could answer. (Having a wrong quantity at a particular price level resulted in a public flogging for the offending clerk). “I got another 6,000 to buy Ray, said Buddy from Asiel. So Ray replies, you bought 2700 at 37 7/8, 1000 Merrill & 1700 Hutton, & 3300 at 38.00, Shearson”. How’s it now” asked Buddy? 37 ¾ – 8.00, 2000 by 14,700 replied Ray the specialist.
So what can we earn here? Even after buying 3300 at 38.00 there was still 14,700 left at 38.00 also known as” the figure” as whole #’s were called. There was almost always lot of stock offered or bid at “the figure”. Human beings like round whole #’s. There were always many more orders, for much more stock at whole #’s than any other price increment, and more at .50 than there were at .25 or .75, and more at point .25 & .75 than there were .125, .375, .625 & .875. And you can extrapolate that to out stocks and options that traded in sixteenths too. Smart traders on the floor knew that if they weren’t standing in the crowd, and entitled to a “match” (in those days the book would get the majority of the trade but brokers standing in the crowd could be entitled to some of the sale), they may have been better off offering their stock one trading increment below the whole #, or bidding one increment above in the case of a buy order. A bit painful as increments were wide back then, 1/8th or a 1/16th, but better than missing your trade. This was known as “Teenieing the bid or offer” Today, with penny wide increments, it makes absolutely no sense to place an order at the figure, the whole #, 38.00 as the cost to teenie that large grouping of orders is only .01, a small price to pay to Avoid the logjam just overhead. Human nature is still the same, people still like whole #’s, and to a lesser extent halves, (.50). It is not as prevalent as it was in the past as algo’s aren’t governed by human biases and they account for so much of our volume, but it still is very prevalent and the cost to a trader is miniscule compared to the old days, .01 verses .0625 or .125. Take a look at the chart below. It is Facebooks opening day. The stock opens at 42.05, prints at 42 in the 1st minute (if you were bidding 42.01 you got filled, bidding 42.00, maybe, maybe not). In the same minute it rallies up to 45 (if you were offering 44.99 you got filled, offering 45.00, maybe, maybe not). It sells straight down 7 points over the next 2 ½ hours to 38.00 (if you were bidding 38.01 you got filled, bidding 38.00, maybe, maybe not), rallies to 40.50, and drops to 39.73, rallies to 42.00 and drops to 40.25, rallies to 42.00 and drops to 40.00, rallies to 40.99 and then drops to 38.00. Eight instances in FB’s 1st day alone where placing your bids and offers .01 above or below a round # would’ve resulted in a definite fill verses the very real possibility of not getting one at all. In all of these cases the stock moved enough away from price to have caused (if you did not get filled on your original offer)one to trade at a less advantageous price or no fill at all if one were not nimble.
Now this obviously does not mean I am advocating trading at these prices as a system, lol. This only pertains to situations where a trader is intent on trading at a price near a round # anyway. Also keep in mind, that many times the stock will trade through the figure and keep going, and you won't realize any benbefit in thse instances, in fact you will cost yourself a penny. But just imaging that you were offering FB at 45.00 and it didn't sell, and you didn't hit a bid immediately. How many pennies would you have cost yourself? So, be the TEENIEer, not the TEENIEed! And save a lot of coffee!