Trading Traps


Of Note:

There are always traders better than you.

And they’re looking to exploit you at any chance they get.

You can learn more about how to avoid them—and even make money off them.

.........................

With my access to  "Level II quotes", I regularly see these "red herring" plays of ramped up demand to buy/sell a given stock - "the squeeze play" - on the Venture Exchange's penny stocks only to see the bids/asks pulled later in the session.  The best time to see this happen most is at the start of the trading day. Some platforms/web sites display the buyers/sellers. ( I hate it when these "players" hide behind the "anonymous" id. Its mostly because they are acting as buyer and seller to generate a "false sense" of higher trading volume in many cases.) In Canada, its mostly the "wealth managing firms" that dominate the so called trading direction of a stock and exploit the newby "retail trader". We get to see first hand the "boiler room operation" of these scams as our board is so small its easy to determine the "crews" at work. As the article states - the practice isn't illegal.  And they are all playing for pennies - They are not going long. They are the insiders who get the first heads up on any rumour or soon to be released news item.

I like looking at the trading volume history. If there is a spike and the stock isn't going in any direction on the given day, you can be pretty sure the stock will pop on news or a rumour and they'll  be selling. So when I see this increased volume and no change in the price, I buy some and sell when it starts moving up.  Why? Because they are selling. Here too it helps a lot to have the seller/buyer displayed. I always questioned who's selling when we have positive news on a stock. Why hold the price down when there is a demand to push up the price. These so called "wealth managers" are competitive amongst each other and this is the game play. If they can only get a 1/2 cent or 1 cent move, it's still a very strong % return. There is no way "wealth manager" number 1 is going to let number 2 get in on the frenzy. - "Pigs at the trough." So we as retail traders need to take a page from the same "playbook."

And yes our Canadian market gets into the crosshairs of the manipulative Goldman Sachs.

Keep in mind - Risk/Reward is always in play and risk is always greater. So have an exit strategy and don't risk what you cant lose.


____________________________________________________________________________________________



Beware of These Trading Traps by Market Makers

Fausto Pugliese
The Day Trader
Equities Magazine
2010

Trading may be the ultimate “survival of the fittest” profession.

No matter how good a trader you are—or how experienced you may be—there are always traders better than you.

And they’re looking to exploit you at any chance they get.

I’m most reminded of this harsh reality of trading life when I watch the action on my Level II screens. Day after day, uninitiated traders get deceived—and have their money taken away—by savvy, highly experienced market makers. Most of these new traders naively think just having access to Level II data is all they need to succeed until they lose thousands upon thousands of dollars or just quit trading out of exasperation.

So, with that in mind, let’s look at some of the common tricks market makers unleash on unsuspecting souls and see whether you can save yourself some money the next time you trade.

To begin, in case you’re not familiar with Level II, it’s an electronic system that reveals a complex picture of what’s taking place under the surface of the market. It contains a list of potential buyers and sellers of stocks, including the bid and ask prices and the number of shares in each order.

Having this wealth and clarity of information at your fingertips can lead you to believe you have a firm grasp of what’s happening at the moment with a stock. And this false sense of awareness is precisely what market makers thrive on.

They want you to buy or sell a stock at just the wrong moment, and they do it by making it appear you’re doing the “smart” thing.


When market makers seek to buy shares in a stock, they obviously want to get the cheapest price possible to benefit either their clients or their own trading accounts. So they create the illusion that the stock is ready to drop by placing offers very close to the last selling price and showing bids well beneath current levels.

This apparent lack of buying support leads the unwary to believe that the price of the stock is about to go down—perhaps sharply—and that now would be an opportune time to sell. And it also gives newbies the misguided idea that this would be a great chance to “front-end” the action and go short.

As both groups will find out later, this temporary downward pressure was just a “head fake” or trap used by market makers to spring shares at favorable prices from the uneducated. Once the market makers have fulfilled their orders, the alleged selling pressure will yield, the price of the stock will ease back up, and the sellers and shorters will be grumbling at their screens.


When market makers want the price to go up so they can unload shares at the best prices possible, they’ll do just the opposite. They’ll create a false sense of underlying demand and an illusion of anxious buyers who just can’t wait to get in, which causes the price to rise. After the market makers have finished their selling, the price will drop to its “natural” levels.

Mind you, these aren’t huge movements in prices. But they’re enough to allow market makers who execute such trades hundreds of times a day to generate significant amounts of profits. And, yes, market makers have the kind of clout necessary to make this happen—some of them work for the biggest financial firms in the world, like Goldman Sachs.

This sleight of hand by market makers occurs in practically all big-board stocks but is easier to detect in stocks trading under $30 and small-cap stocks.

Keep in mind that while you may think these sorts of activities are unfair, they are legal and they’re an everyday part of the financial markets.

While you can’t stop these tactics, you can learn more about how to avoid them—and even make money off them.



____________________________________________________________________


Thanks for checking out my page. Red Mars

My current short term combined account goal (RSP & TFSA) is $85,000.00

Why I trade penny stocks Part 13

Why I trade Penny Stocks Part 15

Why I Trade Penny Stocks - Part 16

Best weekly net sales this year. Why I trade... part 17.