Players lose the card game Hearts when they pick up the queen of spades or too many of the various hearts. However, if one player can pick up the queen of spades and all 13 of the hearts, that player wins big, and everyone else loses. Players shoot the moon when they try to execute this strategy.
To shoot the moon, players must conceal their intentions lest another player foil them. If they collect many-but not all-of the cards they need to shoot the moon, they will lose badly.
Traders who try to squeeze a market essentially shoot the moon. If they are successful, everyone else will lose. But if they do not control enough of the available supply, prices will drop before they can sell their positions. Since they typically push prices up to acquire their positions, they lose badly. ~
In the U.S. stock markets, the Securities and Exchange Commission and the various exchanges monitor trading to detect and prevent squeezes. They cannot identify all stock squeezes, however. Squeezers often defend their actions by arguing that they are simply speculating on information. Since the SEC cannot easily discriminate between intentional squeezes and squeezes that result from price changes caused by honest speculators, short sellers always must beware of squeezes.
Squeezers are parasitic traders because they design trading strategies that profit only when they can exploit other traders. Their manipulations make prices less informative, and their trades greatly increase transaction costs for other traders.
MANIPULATION OF STOP ORDERS
Traders who use stop orders must be very careful about exposing their or- ders. Shrewd traders who know where stop loss orders are set can employ a manipulative trading strategy called gunning the market to profit from this information.
Market manipulators gun the market when they push prices up or down to activate stop orders. The stop orders then accelerate those price changes. The manipulators close their positions at a profit by trading with the stop orders.
Traders who use stop strategies can protect themselves from gunning strategies by hiding their orders and by trading only in very liquid markets that are expensive to manipulate. Otherwise, traders must monitor the mar- kets to determine whether the price changes that hurt their positions are due to fundamental changes in value or to traders attempting to exploit stop strategies.
In some countries, including the United States, price manipulation of this type is illegal. The law, however, is virtually impossible to enforce be- cause it is difficult to prove that a trader was gunning the market. When confronted, manipulators defend themselves by saying, "I bought because I felt that price was too low, and I sold when the market realized my expec- tations." If asked why they did not buy again when the market subsequently fell, they say, "Since I did not expect the market to fall, the fall demon- strated to me that I really did not understand what was happening. I was therefore unwilling to trade again." Without reliable evidence that docu- ments the true purpose of their trading strategies, authorities cannot con- vict gunners of price manipulation.
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