Do traders ever lure market makers?

ChaosNantuko answered 8 months ago …

For a single person to move a liquid stock down that far would require far too much selling. Yes, when market makers see heavy selling, they decrease the price of the stock in response, but given the overall volume, a single person is usually insignificant. I'll use walmart as an example. Looking at a 1 minutes chart, the lowest volume they had in the company was 12000 shares in a minute, while average looks closer to 25000 and it went above 70000 a number of times. Even those 70000 share/minute instances didn't have massive movements, almost definitely not far enough to trigger a significant number of stop losses. In order to actually move the market, i would guess that you'd need to buy/short at least 15000, maybe as high as 30000 shares per minute to make WMT move the way you wanted. to go far enough to wipe out support or resistance levels, you'd probably need to maintain that for 3-5, maybe even 10 minutes. So at the very least, i think you'd be dealing with buying 60000 shares @ $50 each, (3 million dollars worth), to allow you to short at a favorable price. Thats being conservative. You could be dealing with buying as much as 100000-200000 shares to move the market enough to break those stops and get a favourable price. but then to reverse to a short position, you have to sell your position to get to even again (moving it the other way before your positioned), and then establish a new short position (and if your accounts that large, you probably need to buy 10s of thousands of shares to make it worth it). By the time your down establishing your short, you've pushed the market to oversold territory, and there's a solid chance people have jumped in due to low RSIs, Stochastics, etc.
Long story short, doesn't sound profitable, at least not on a big company.
On a small company, you hit almost the opposite problem. A thinly traded microcap that isn't heavily traded may be easier to move, but exiting a large position would be a nightmare as the lack of volume means as soon as your try and close the position, it moves the market to the point where your no longer selling(or covering) at a substantial profit. While i don't think its impossible, its probably not as profitable as it sounds, and i don't think its done frequently.
A popular book, reminiscences of a stock operator does include a couple examples of similar sounding dealings, but that book is talking about the market of the early 20th century, where volume was substantially less then it is today.