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Who benefited from the "Flash Crash" and who were hurt?…If you believe like me that, it wasn,t an accident…A Guest Broker on CNBC mentioned that it Cleaned Out Momentum Traders….If Momentum Traders were patience, they could,ve bought back their stocks a couple of days ago for less than they were stopped out at?
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The people that got hurt were investors, not traders. With their confidence shaken over the Flash Crash, why would they want back in, at any price, if they’re just going to get their stops run again?
In order to sleep at night, many investors passively manage their portfolios with a stop loss order. If you know how stops work at all, and that they have to be placed well away from fluctuating price action, then to get stopped out is a horrible place to sell your stock. And when you do get stopped out, it means you were wrong to buy this stock in the first place, and you certainly don’t get back in right away because the trend is probably down. Well that works in any normal sense, in any normal market, and has worked for many decades — until now.
So how do you protect your investments now?
Have you seen the long list of ETF’s that simply locked out?
Here’s a good article that explains many of the problems.
All it hurt were a relatively small number of investors who did not place limit orders. Most of the people who were hurt were already or eventually will be made good by the fact that many erroneous trades were nullified. Absolutely no one came out ahead since any one who did will have their trades nullified as well. It was a small technical glitch that in today’s world of super-high volume trading had a big impact on a tiny number of trades.