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3-Day Trading Rule
3 Ps of Investing and
Strategy
Bashers Roundtable
Market makers control the action on
the penny arcade not shareholders..
Is there really manipulation by market markers?
Manipulation by Market Makers is an really an overstated term that carries
feelings of exploitation and down right fraud, but in reality, Market Makers are
not companies that appear like one night stands and then disappear, quite the
contrary.. Market Makers are responsible to make a market and to meet the needs
of those they are responsible for, companies, shareholders and institutions and
it is to these entities where they may try to influence the best market
executions.
If the Market Maker was to keep the price steady on the release of news they
would find themselves with lots of buys or sells which they had no choice but to
fill at the screen price (what you go by and this is their obligation, but
before they could find matching orders (for every buyer has to be a seller and
visa verse) they would have to change the price and they would then loose money
through market exposure. This is bad for them and for us.
So what happens if there are all sells and the price is going up? Well the
explanation is that the Market Maker had an order to fill and no stock to fill
it with (this trade would not have shown up on your screen until somewhat later,
which are referred to as delayed trades). Under their obligations to create
liquidity in the share, the Market Maker is obliged to gather an inventory
(Stock holding), but only until they can meet the above obligation. This is only
possible if they can encourage people to sell, which can be achieved by raising
the price...The order is likely to have been large enough allowing the Market
Maker to gather a decent premium on the price. So once the order is filled and
the market volume returns to their normal levels, so does the share price. You
can see this through the daily highs and lows along with the volume at these
particular trades in time or in sequence.
You've heard the term on these message boards all too often "shaking the tree".
Well that is when the MMs moving the price up, which will encourages sells,
moving it down also encourage sells. Another look is that the price was hiked
way up despite the support level and few of the people who got in are now going
to sell.. The rise was artificial and the real traders in the know just ignored
it as it only lasted about 2 hours, but what was caught were investors who were
in way before the spike and had forgotten about it, now they want out. Volume is
a big part of this and sometimes folks ask "why the volume".. So the Market
Makers order gets filled, the price settles back to a support level and volumes
decrease and it starts all over again. This scenario is where shorty likes to
hang his hat.
The above reason is why you should never put a pennystock in your sockdrawer and
daily monitoring is an absolute must. You have heard me post such reasons and
should be
part of every persons understanding and why the term "long" makes no sense and
will only have you losing money.
Can you track such activity? So So and there are all sorts of tricks and one is
mainly to reduce the volatility.. Sometimes this is mostly done by increasing
the bid/offer spread therefore discouraging trading especially by day traders
and also by marketing the companies shares, Loansharks as referred to equity
financing (dilution) in the hope they will take up long term positions.
There are a couple of areas that MMs try to encourage liquidity and one is all
to apparent. .Notice on the boards when posters beg the company to release news
any news, well the MMs need this one venue to increase the liquidity and such
encourages the companies to produce news releases, whether substantial or not..
It does create interest if you know what I mean.. The other area is by narrowing
the spreads..
You ask if this practice is legal, well sort of and then not. See Market Makers
are not supposed to allow themselves to go short, but in the process of making a
market they may well find themselves short of a stock. If this happens a Market
Maker has a number of options, purchase from another Market Maker, which they do
quite often and it is allowed or play with the price in the hope that enough
sellers will embark to cover the short or borrow the shares. The institutional
borrowing, which happens on larger exchanges is much practiced, but in pennies
is unlikely since institutions don't hold pennies unless it is from offshore
loansharks and then they just speed up the dilution process to cover and of
course a manipulated PR to help in this angle.. If that's illegal? Well my
friends, this has been going on since the dark ages.
Thus you have your day-traders and their only means is to make money on the
heels of the MM's, not your long-term holders, they will never recoup and that
I'm sure of.
The key to trading pennies is timing and one must have an understanding of how
the market markers play.. One rule that will always apply and that is the 3 day
rule..
Never buy an issue on a 3rd day uptrend in pennies and sell on that return
reverse of a swing on that 3rd day or the outside of the 4th day.. After that,
if it hasn't gone beyond the lows before the uptick is the time to dump. In
other words, never chase a stock..
Have a good day
Varok
http://www.stockmarketquarterly.com
Everything on this site is Copyright (c) 2000-2008 by KVR/Varok. This material
may be distributed only with proper credit to and must include the
Author.. Distribution of substantively modified versions of this document is
prohibited without the explicit permission of the copyright holder.
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