Short traps on rigged stocks
Updated: Sep 30, 2019
The advantages of trading manipulated microfloat stock is that it allows trader multiple ways to trade it (long or short depending on which stage trap is in) and it also provides many entry opportunities since most traps are set with wide moves and volatility. This is distinctive advantage compared to trading ticker that fades straight from the open, only giving trader very limited entry opportunities. It does come with its negatives as well however, in some cases the rigger / manipulator might unload quickly big size and if trader is long that can cause large loss. It is very important that trader understands the sizing of position well and to never risk too much on any single entry, just in case of offload or big price push from rigger if short.
Bellow on article are explained certain specific variables that are present on rigged assets, which trader should pay attention to. All variables should overlap together, it is important not to just isolate single variables and expect asset to be potential short trap just based from single variable. It is also important to keep open mind, just because asset is displaying all variables of rigged / manipulated asset it does not mean that market maker will always succeed at creating the trap and its final outcome.
Types of short traps
1.(Type 1) Big short trap
Stages of manipulation confirmation on microfloat stock for type 1 trap explained bellow (manipulation with aim to create short squeeze). Term microfloat in article mainly applies to stocks with float under 5 million shares.
-huge volume over 5 million shares within first 1 hour of trading (9:30 - 10:30 NY time)
-300k volume per M1 candle, consistently printing such candles
-heavy volume washes confirming single player unloading
-lower highs, consolidation and more high volume washes
-unusual spikes out of nowhere, confirming single player handling the asset
-structure with at least 3 lower highs (M5 time frame)
-last 1 hour before the market close sudden surge of volume 100k+ and push
-breaks last major high on volume
-short squeeze in progress with clearout attempt (85% success rate if all variables match)
Once the asset starts stacking and actually following above variables step by step, then trader can start to expect the EOD (end of the day) short squeeze.
Bellow is example of large symmetric short trap. This trap is usually laid out over longer period of time, usually 2-4 hours on asset that is trading strong on a day often above 70% gain (for example stock that goes from 2,00 USD to 5,00 USD in one day).
2.(Type 2) Small asymmetric short trap
Bellow is example of asymmetric smaller trap, usually set in last 45 minutes of trading. This one is often present in large cap equities as well. This trap is usually laid out if rigger has already removed the short liquidity before with HOD clearout earlier.
Time on example bellow is noted in NY eastern time.
3.(Type 3 ) Nasty short trap with huge volume and large price spike
Bellow is more unusual example of short trap, specific to microfloat assets, this one is especially problematic if trader is short, because it might be hard to get out and cover quick, especially if asset is under SSR (short seller restriction). RKDA is example of ticker that had 2 of such traps in 2019.
4.(Type 4) Demand wash with support reclaim trap (combo trap)
This trap is very common in all markets. In small cap equities it is usually laid on front side of very strong bullish impulsive move. Rigger will flush out demand with new lower low and then push price back inside structure and squeeze into HOD and clearout. Reclaim of underwater support is going to be usually key variable to look for. In this trap both sides of market are cleared out, first longs then shorts. This trap can be played long on support reclaim and then short after HOD clearout (joining the side of market maker). This trap is especially most common on tickers with float under 2 million shares.
No major underwater supply
On tiny float assets with 1 million shares float or bellow it is much less meaningful to plot any resistance lines on chart, because if asset is rigged then MM will soak all the shares that he wants to, making historical resistance lines less important. The price will go as far as rigger wants it to go that is the end line, but only if asset trades on very strong volume. On tiny float all sellers are soaked up easily, and once that is done any historical price levels are meaningless since there is no underwater supply participating in future moves from historical higher price levels. All it matters for resistance plotting is volume (and potential dilution from company), if asset trades on very strong volume (on the day) then it is no need to plot any overhead resistance lines, if asset is trading on weak volume then perhaps it might be good to plot the resistances of overhead levels. Round dollar numbers (5,00, 7,00 etc)av with clear participation of limit orders on Bookmap / tape are better "resistance" guide than plotting historical chart lines on assets with tiny float usually.
Majority of rigged assets will have no major underwater high volume supply on asset (from past several months). Once the asset puts rig day on with 20 million traded volume it is highly unlikely it will get rigged again for at least several months, unless it gets rigged straight away next day and the MM is still holding many shares (strong close by EOD). This is just based on overall statistical data of rigged assets. Checking daily chart and the previous historical large volume days over past 3-5 months is thus important to gauge if asset has decent chance to be rigged on a day or not. The reason why market maker might not want to rigg asset with strong high volume day from previous month for example, is because there could be large amount of underwater sellers to sell into him, making manipulation process harder, or demand more capital for MM. However this is mostly speculation on my part, since it is hard to prove.
Conceptual example of no overhead supply (previous historical volume versus todays volume on stock and its relevance to plotting resistance lines):
One key component that majority of short traps will share is consistent progression of even or lower highs. Reason for that could be two fold:
1.Density of stop losses and panic covering will be more visible to MM rigger (overhead liquidity) if asset is progressing with consistent lower highs.
2.Consistent lower highs project "weakness" of asset luring in more shorts.
3.Lower highs ensure larger probability of large portion of short sellers to still be "in the money", since many short sellers use last major high breach as stop loss.
Thousand traders, thousand trade ideas. But what is interesting is that no matter what indicator traders are trading or what reasons they are using for entry, there is one common thing that draws many traders to same board, which is how stop losses are set and where the panic begins. Majority of long traders no matter what they trade, they will set stop loss under lows, and majority short traders will set stop loss above highs or plan to cover if price gets there. This reason is exactly why MM rigger will always take that last bit of liquidity and clear HOD or LOD (low of the day) on traps. And the more consistent the highs or lows are positioned the more traders will set stop losses under / over such price area.
Bellow is conceptual example of usual liquidity difference of short covering and stop losses based on how price structure is progressing (exponential progression of lower highs versus even highs or slightly shallower highs).
Majority of rigged equities will have float under 5 million shares. The lower the float, the easier it is for market maker to soak the float / sellers at preferred lower price and then play the games afterwards. The higher the float, the more offers can unload into him after price starts climbing presenting more risk to MM (especially with underwater supply). Riggs also happen on floats such as 25 million shares float assets but they are much more rare, only 1 such asset was rigged in 2019 ticker LJPC.
Example of tiny float and small market cap on rigged ticker FFHL.
The smaller the float and the smaller the market cap the easier it might be for rigged to squeeze the shorts. Takes less buying power and in such case often rigged will be clearing out longs as well before forming short trap.
Checking float for potential rigged play is the most important variable trader has to do in pre market or afterwards. Personally i use 3 different sites to cross check what the float is and i do not use finviz usually due to less reliability. And for better accuracy it is best checking actual fillings of company just to make sure that float number is accurate.
Site that can be used for checking the fillings of company (10 Qs and offerings for number of shares):
Those two sites are quite accurate on float reports usually:
Checking the short shares availability
Usually stocks that are rigged have aggressive short participation, it is often worth checking if asset is hard to borrow or easy to borrow at your or other brokers, or to check if borrows are still available for it. If asset is easy to borrow at many brokers, it is likely to have stronger participation of retailers on short side and potentially be more attractive for market maker to form a trap.
Is it algo?
Many traders are pointing out that this is the work of algorithm, it might or it might not be, there is not enough proof to call it. Algos are certainly prticipating on those tickers (Level 2 action), but to say that trap is laid out by algo would be pretty big guess. At the end it really does not matter, as long as trader learns the pattern that is all it matters, does not matter if it is robot or a human behind it.
The goal on rigged play might be few fold.
1.Push the asset up to use offering and raise the capital for company
2.Push the asset up to exercise warrants
3.Push the asset up to squeeze the shorts and unload into longs, gains for MM
4.Or whoever knows what else...
The reason to point those is because trader should not actually worry too much about picking the hidden macro agenda behind the rig. Nobody really can pick the agenda well, even with historical data its too many conflicting information, unless you are insider. The primary focus should be knowing how trap is set to extract the edge from it, and that can be done without knowing the macro agenda. Before the macro agenda, there comes the micro agenda, which is how they rig the asset to push for the squeeze and how the price develops and behaves is what trader can extract edge from.
The main micro agenda on most rigged assets will be HOD (high of the day) clearout. This is what trader can focus on and play the long side with the aim to catch that liquidation move when it comes, usually in last hour of trading before the close. Longing ahead of clearout, and shorting the clearout if it has heavy volume and price is unable to hold above. Those are two main polar opposites to play traps, however by no means they are the only way to trade the trap, it is just usually that those two entries provide best RR on trade.
Often the assets that trade on thinner volume or are very low float (1 million or under) will be clearing out both sides of market before the actual micro agenda is achieved. They will clear out longs before they push the price up and clear the shorts before they unload, reason for that might be because MM does not want to have offers that fight him when he is pushing price up (due to tiny float), or shorts covering into him when he is trying to clear out longs. Both of those cases might put more strain on MM that is rigging the asset.
This makes those assets much harder to trade, and often many traders will have losses on those assets if trader is reading the trap poorly.
After HOD is cleared out with quick spike, often MM rigger will form microshelf under it within next 15 minutes. The goal is to perhaps to soak in more short covers (because price might need to hang around HOD so that all shorts notice it, because not everyone uses hard stops above highs) and also they might want to lure in some long chasers which allows them to unload into them easier.
Microshelf size is usually going to be the size of bid/ask spread which means that the actual size will depends on the asset itself. For example ticker that trades on tight bid/ask spread (1 cent) might have very tight microshelf (3 cents wide) while tickers that trade on wider spreads will have deeper microshelf.
When microshelf is formed the dump will often proceed from it, thus important component to keep eye on. Often those offer good RR on short side.
Bellow is conceptual example of microshelf.
Example of microshelf on RKDA after the HOD clearout.
After hours game
Last piece of puzzle on rigged asset is after hours push.
Some assets after they close strong on a day will also be followed with further after hours action and more upside. Statistically most common is to see small push 20-40 cents after the market close, big AH pushes are more rare. Usually the volume is main tell sign if stock will be pushed much higher, majority of strong rigged AH plays print 20k M1 volume candles within first hour after market close. If asset does not match those volume numbers it is unlikely to have major push in after hours.
Bellow is example of small push after the close where asset did not meet the required volume numbers for further sustained move.
Example of ticker FRAN, which did put 20k M1 volume prints and had substential AH move after. Volume is the key in AH to tell if asset might have larger move.
Bellow is example of asset with very strong AH (after hours) push and strong volume.
Examples of strong AH trading were on tickers BPTH, AKTX, SEEL in March 2019.
Trap examples (look above for type 1-4 traps):
Type 1 trap bellow on LJPC.
Type 3 trap bellow.
Type 1 trap bellow.
Type 1 trap bellow.
Type 4 trap bellow.
Type 3 trap bellow.
Type 1 trap bellow.
Type 4 trap bellow.
Type 2 trap bellow on FFHL.
Type 4 traps bellow.
Is this play going away any time soon?
Shorting small cap stocks and hard to borrow stocks is becoming more and more accessible by more brokers each year providing the access to shares on those stocks. For that reason it should be expected the frequency of rigged assets to not just fade over time but potentially increase in more and more such examples. Few years ago there were only few decent brokers with access to shorts on such assets , today there are dozens of new brokers, this creates more shorting volume of retailers on stock, giving riggers more opportunities to form the traps.
Symmetry of structure and its importance
Majority of biggest traps will have strong symmetry behind the price. This is relevant to any market, whether its stocks, crypto, FX, futures...When structure is very symmetric majority of market participants will start to track the same price levels, around which they will stop out, which makes for rigger more predictable and easier to stop out and clear those traders out from positions. On strong symmetric traps such as ARCI example bellow, the rigger will often clear out longs first and then also go for shorts, this is part of type 4 short trap. The more symmetric the bounces are, the more long traders will then stop out once the lows are cleared, and the more short sellers will use symmetric highs to stop out of short. Thus it is important variable to listen to, if structure is very symmetric and asset is strong on a day there is decent chance for trap type 4 setup. Consistent symmetry attracts participants and condenses the actions of traders around key symmetric levels. Most long traders will participate in long because if asset has bounced 5 times, it should bounce 6th time as well right? And majority of short sellers will participate within the same thinking, if asset cant break highs 5 times, it should maybe also not able to do it 6th time right? That sort of thinking is what market maker / rigger is looking for to set a trap.
What often riggers like to do is put a cheese into mouse trap just to start luring the intended liquidity target as they start to build the trap. They put the strong impulse leg (usually bull leg) to start luring longs ahead of long trap. That is why trader should be very careful when asset puts un-expected strong volume leg out of nowhere and price starts to build symmetric structure. On microfloat stocks, that will be in 80% cases a trap in the making. Very important variable for trader to track. Big volume leg out of nowhere....and then symmetric structure. On highly liquid / commonly traded asset it is more common for asset to set up symmetric structures, on more thinly traded asset such as microcaps it is far more unlikely for asset to do that, due to higher retail participation and asymmetric opinions. That is why on AAPL ticker symmetric price consolidation might not mean that much, but on microfloat asset it is more likely that market maker is setting up trap.
Such example bellow on ticker EDSA, long trap.
ARCI ticker bellow with type 4 short / long trap and symmetry of behaviour around key support line and around highs at supply.
Which short sellers are in the money?
To look for potential targets where short trap might push it is important to look left on current intra-day chart and check the price levels where short traders are potentially in the money and still potentially holding their shares. 1 minute (or under if possible on platform) time frame has to be used for this , so that trader can precisely see which price areas on the move down have not yet been retested, those are the price zones where short sellers are potentially still in position and riggers might target those areas.
The reason why this helps trader is because not all short traps will clear HOD. In some cases if there is no liquidity above or price hasnt traded enough time, there might not be worth for riggers to push price above HOD.
Priority target areas are always price structures / zones where price has consolidated for longer time, because at those there is higher chance that many short sellers have participated. For example opposite of that is price structure with single high where price rejected very quickly on low volume, on such structure it is less likely that there was significant short selling volume.
Bellow is approximate way of which zones might be priority to be targeted and are likely to contribute to short squeeze target. This is not by any means perfect science it is just based on research of 300 tickers on my part that were rigged.
Price zone should be un-tested to be considered for EOD short squeeze attempt. Because it was already tested / broke on upside chances are many short sellers have already covered, this puts zone in lesser likely chance of being targeted in future.
Conceptual example bellow:
One of key variables to tell if asset is rigged by MM at later stages of trading (after 1:00 PM of NY time) is heavy washes that are quickly reclaimed. The rigged asset will show different price movement anomalies which will reveal single player behind the asset doing the work. Usually on nano float assets under 1 million float, the rigger will clear out longs before they push the price up to squeeze shorts, and often that will be done with strong washes. If that high volume wash is quickly reclaimed (for example within 5 minutes) that often is variable that MM will keep doing this until EOD push. Once strong washes are present with quick reclaims it is safer to long only on washes and not on strenght, otherwise one is trading against market maker. The reason why this variable matters mostly after 1:00 PM is, because the liquidity will dry usually by that time and the manipulating actions will be more clear by that time. Lion does not stand out in jungle but he does stand out in flat savanna.
Example of such ticker RKDA on the day it was rigged of 9th August 2019.
Also additional thing to note for potential rigged stock is if asset has strong washes (quick wash 10 seconds) but the asset is still holding support and is overall reclaiming those heavy washes within 30 minutes time. If such behaviour is present chances are asset is rigged, and there might be end of the day short squeeze present.
Bellow such example of RKDA on August 10th.
The reason why this variable does matter to spot potential rig, is because in most microfloat assets that are not rigged once asset starts to put heavy volume washes the price will not reclaim them and asset will fade towards the end of the day. It will be more of supply imbalance confirmation rather than anything else. Usual market reaction is that when there is sudden quick drop market tends to sell off some more as longs panic out, if price reclaims very quickly up the wash it is often the rigger behind it, as it is less likely that market would suddenly buy strongly into strong drop. General market participants are more of followers rather than initiators, MM riggers are initiators.
Example of non rigged asset bellow on ticker PSTV, where once the heavy washes started, price did not reclaim any of the last washes. Such assets will very rarely get EOD short squeeze, at leat not in any sense of large trap with HOD clearout.
Again this is not about isolating variables, expecting that just because asset does not reclaim washes that trap is unlikely to happen. All the other variables matter and how they fit into context. How long did price not reclaim washes, how many % has price droped over last hour without reclaiming them, what was the volume on washes compared to bullish pops, how much of overall gap did asset gave back, what other above variables did or did not asset met....
Traps are all about fitting the right variables into right context.
Time window for trap layout
Different traps will be set within different trading hours. Type 1 traps are the most common in last hour of trading (3:00-4:00 PM , NY trading time), type 3 traps are most common in first hour of trading, type 4 traps are most common in last 2 hours of trading, and type 2 is set across any hour. This is just based on overall collected data of the traps, and it can help trader to identify if asset is currently fitting the trap potential and the hour matches the type of trap, there is increased chance that trap might actually play out.
Last hour of trading is the most common for a short trap, reason perhaps because most traders that are short expect demand to weaken towards last hour and the asset to sell off, thus at that hour market maker has largest short liquidity to play with. But that is only assumption i have no actual data to back this by.
Example bellow of trap set on PSTV in last hour of trading, 3:00 PM of NY time. Type 1 trap.
In most cases of short traps, especially the extended ones that were in consolidation for 2 hours or more there will be noticeable volume surge around 1:00 - 3:00 PM NY time. Thus watching the volume is one of key components for potential trap in the making and the incoming squeeze. Volume has to be on pushes not on drops and tape should show plenty of ask aggression from market buy orders.
Such example on ticker ABIO and ATAI bellow:
Strong impulse bull leg
Initial starting variable of almost all type 1 or type 4 short traps will be very strong impulsive bull leg on plenty of volume. If asset does not put in that variable it is highly unlikely for type 1 or type 4 trap to be set. Simply MM needs to bake that momentum to put the meat on asset and to start luring in shorts. The higher the microfloat asset goes the more aggression of shorts will be initiated. That impulsive leg could be in size of single M1 candle or in size of 20 candles, sometimes more sometimes less, the thing that matters most is that it needs to have overall good volume on it. For example 2 million volume push across the leg is a solid start.
Once asset puts strong impulsive leg and it starts to build very symmetric structure with bid defense on demand (example FTFT bellow) it is highly likely that MM is setting up type 4 short trap (combo long trap at same time).
Strong impulsive bullish move and trap set afterwards on FTFT ticker example. Leg is highlighted by blue line.
Putting it all together
All variables put together, confirming potential rig . It is important to listen to all variables to match potential rig, it is not enough to say if asset is up 50% by last hour it is chance of short trap. Such statement will include to much data noise from stocks that are not rigged at all, thus it is key to have many variables match before "confirmation" can be made. Putting word confirmation in brackets, because at the end no-one really knows if market maker will pull the plug or actually play along. Timing is everything on trapped asset, to know at which stage of rig one should long on weakness and where to long on strength, or where to short into strength or short into weakness, this will all depend on which stage of trap the asset is on. When asset is heavy washing but reclaiming washes it is better to long on weakness (into drops) and when asset starts to put strong volume push and is holding it is better to long the strength. The biggest risk to reward short trade on type 1,2 and 4 traps will be after HOD clearout.
Bellow example of rigged play on August 22th on ticker NETE. By the last 30 minutes all the variables matched and signaled potential trap in the making and EOD short squeeze. Sometimes asset will be clear from first 2 hours that it is rigged, and in some cases it might only become more obvious towards last hour before market close. And then there are those setups that only become clear after the fact in hindsight.
Generally market always finds way to make trading harder. If there is type of assets such as microfloat stocks (often weaker companies) that have consistent dilutions or stronger supply and fade of news, then some market maker will find a way to make the "usual" asset behaviour into unusual, especially if too many short sellers get too comfortable. The same can be applied on crypto assets but in opposite direction - on demand side.
Traps are usually laid out against the usual direction of where retailers participate.