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a market order to buy at the opening is one of the most common and foolish mistakes that inexperienced or unknowledgable investors make. The simple rule here for investors is: Never try and buy any stock with a market order at the open. And, in this case, never really means never! You are guaranteed to pay the highest possible price the market maker can get you to pay and cursing yourself for your mistake an hour later. |
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The cliché in trading circles is that the first hour of the market is called the "amateur hour" because all the beginners make all the wrong moves for all the wrong reasons in this first hour. Investors need to sit back patiently and watch how the action unfolds. They need to see what the trend for the morning will be. It is usually unwise to try and buy anything during the first hour unless you are an experienced trader who knows how the market gets manipulated during this period. |
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After the clearing stage, the next 10 minutes or so (9:50 to 10 A.M. EST, 6:50 to 7 A.M. PST) is called the "reversal." In this relatively brief period, whatever trend has been established over the first 20 minutes is reversed. Why does this occur? Because the market makers, who have been either predominately buying or selling from the open, now line up on the other end (that is, if they having been buying at the open, they begin selling) to make gains by taking the market in the other direction. |
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It is important for the casual online investor to remember that the market makers and specialists have no real interest to see the market go one way or the other. Their money comes from commissions, so all they want to do is make as many trades as possible, scalping whatever spread between the bid and the ask they can get away with, in addition to a small commission per trade. They are experts at knowing every possible way to take advantage of quick, short-lasting reversals in the trend and countertrend. |
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They are masters at getting the unknowing investor to pay the highest price to buy and take the lowest possible price to sell. They know how to move markets faster than you can possibly react. To verify this, simply watch a Level II quote screen on any fast-moving stock, like CMGI, Inktomi, JDS Uniphase, or any other of the so-called red-hots that have strong volume and volatile price changes. |
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