Could someone explain what this means?

Bakinec · Mar 14, 2010

Quote from BarOpen:

In addition to the above....If markets were a smooth curve everyone would just buy and hold.
With all the price action people buy and sell, making the brokers for these transactions tons of money. Taking out the stops creates more volitity and price action causing more trades.

Just think of all brokers fees that come flooding in when stops are hit. A wise ole trader once told me to wait 5 minutes after the open to set your stops because of how often stops are hit on the open.

Just saw your post, thanks! You nailed a very good point regarding commissions!

Bolimomo · Mar 14, 2010

Quote from Gubinec:

NoDoji, you're DA man!!!

You explained it perfectly!
...

FYI: That's a DA lady.

What you described... the advantage of someone - market makers - who can see the order book that includes all the stop orders! Imagine that! It's a ticket to print money.

Bakinec · Mar 14, 2010

Quote from Bolimomo:

FYI: That's a DA lady.

What you described... the advantage of someone - market makers - who can see the order book that includes all the stop orders! Imagine that! It's a ticket to print money.

Damn! I apologize NoDoji! Didn't know you were a lady, so let me say that again...

You're DA woman!!!

Bolimomo, do you think they don't take advantage of it, in one way or another?

Bolimomo · Mar 14, 2010

Quote from Gubinec:

Bolimomo, do you think they don't take advantage of it, in one way or another?

I think in a dull market (e.g. doldrums in a day), it's easier for the MMs to create false breakouts to take out those stops. Time is usually around 11:30 am - 1:30 pm (E) or so. But not always. During those times, I usually fade the price spikes.

I am no market market. But if I have a deep pocket (deeper than most retail traders). I will put in some bait money. Buy up all the current askes. Drives the price momentarily higher. Prints get higher. Stop buys get hit. Sell the stock to them (the ones that I just longed). And maybe sell some short. These "break out" traders who want to long all get filled. After all the stops get taken out... momentarily no more buyers at high prices. Prices should fall. There will be late comers who want to take advantage of the price spike and sell. Or even those who did the buy-stop and now have second thoughts and panick. Price driven down... momentarily. Snap snap snap... buy back at lower prices. Everybody goes back to sleep.

The real danger is, of course, some real volume comes in and the market goes on a run.

yepso · Mar 14, 2010

It's market structure, induced selling, sell stops are taken out, longs cough it up, dumb money shorts come in. Large long positions are established and the squeeze begins, and vice versa, liquidity isn't there normally. Depending on the circumstance it can seem relentless and genuine.

1a2b3cppp · Mar 14, 2010

Quote from Gubinec:

I think it's in their best interest to make sure that THEY MAKE money, not that people lose money.

Oh, you know, I should have been more clear, but by "making most people lose money" I was also implying that they themselves are MAKING money (by causing the other people to lose money).

Bakinec · Mar 15, 2010

Quote from 1a2b3cppp:

Oh, you know, I should have been more clear, but by "making most people lose money" I was also implying that they themselves are MAKING money (by causing the other people to lose money).

My bad. I tend to take things too literally when I'm confused))

madmaxer · Mar 15, 2010

With all the respect to what have been said, You also need to know that in many situations when price gets close to a support or resistant line, market makers will actually look to see that which side of the line contains more sleeping orders .

They absolutely do not care if that requires a breakout or reversal; they just go toward that side. WHY ???, because that direction is where they can fill their orders.

What I mean by THEY, can actually be 1 or 2 unit only. For example, if GS and JPM together can fill all the orders in one side of the line when there are not enough orders at the other side, then thats whats going to happen. it moves to the side that can fill thier orders

Now, how that would make them money,?? As it was mentioned by other freinds, the new traders that see this action as a break out or reversal will come in and push the price higher or lower.

breifly, How individuals can make money is to follow what these big ones are doing, but big boys job is not chart reading or analyzing or bla bla bla, their job is to find where more money is and how they can go after it
.... and guess what...
IN THE PAST 12 MONTHS WITH THE BAIL OUT MONEY IN THEIR HAND, THEY COULD MOVE THE MARKET MUCH EASIER THAN BEFORE,

Handle123 · Mar 15, 2010

What often happens is inexperienced traders place stops beyond pivot highs/lows or highs/lows of the day, ES especially, price is driven past these areas 1-3 tics, the inexperienced trader takes the loss. And since he can't stand to be left in the dust, he reverses buying the high of the day and then prices drops like a rock, and he gets another loss.

Young traders love trying to find highs/lows of the day as countertrend trades, they tend to find them though as a loss. It takes a long time to get consistently good at countertrend. Whereas if they just traded trend trades, they would have a better chance at profits.

DrPepper · Mar 15, 2010