Market Maker Tricks

Since I took part earlier in this discussion I feel the need to say the following, lest anyone thinks I maintain this "conspiracy theory" point of view.

IMO:

1. None of this tracking individual accounts with purpose to trade against them happens on NASDAQ an regular basis and to any significant degree.
2. Maintaining this idea does nothing but harm to one's trading as it dissolves the need for education and dilutes the self-responsibility.
3. In many instances market's (and market makers) behavior may seem like supporting this notion; in reality however it is nothing more but experienced traders utilizing conventional ways of crowd. Simple example: one places his stop at certain level, price dives just enough to take out his stop, then reverses. One takes it as a proof "they" knew where his stop was; in reality it was simply stop placement where most of them are and market usual way to act in a manner that hurts the majority.

On this, let me excuse myself from this topic; the only purpose of this post was to avoid impression that my description of MMs behavioral patterns has anything to do with idea of them gunning for particular accounts they identified as daytraders.

Vad
 
Its easy to develope the feeling that the market is conspiring against you. New traders do everything wrong and constant losses induce paranoia. This is exactly the opposite frame of mind you need to make money so it is a vicious circle that is hard to break. Your stops getting taken out constantly means your entries suck. When the market is moving you dont have to worry about the mm's. They take over when things slow down.
 
Quote from kjkent1:/froggie

The question that you're REALLY asking here is, "Why is it that whenever I trade, the trend suddenly goes against me?"

The answer is simple:


Are there ways to avoid the trap so that you can ride the waves, rather than be drowned by them?

Um...maybe...
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^^^^^^^
Froggie;

There maybe several ways to ride the waves and many times avoid the trend suddenly going against me .

1] And even though many are correcting [jumping down froggie] now;
will use strongly uptrending NYSE homebuilders as example.

2] If ''whenever you trade the trend suddenly goes against me'';
entry is usually too late ,
or stop is too tight,
or both.

3] Some of that highest leveraged stuff, its not the MM or specialist and usually try to avoid that highest leveraged kind of like a
''riptide warning ''
or get away like phase 1 of a tidal wave.
:cool:
 
I will state upfront that my day-trading experience in absolute terms is quite limited, i.e. I started three months ago and it took me two months to turn profitable on a consistent basis. Also, I did not read all of the posts on this thread so pardon me in case I am repeating something that was already covered.

From my personal experience that is derived from day trading primarily NASDAQ through a proprietary firm, I suspect that the main running of stops by MMs and by large operators occurs when these professionals are able to move the market to a place where the majority of stops are most likely located. IMO such places are usually just beyond natural support or natural resistance levels, e.g. the high or the low of any of the last three trading days, or perhaps just beyond the boundaries of a congestion. Basically, if the market mover is able to take the market to a place where some stops are likely to be located, unless a significant amount of the outsiders/public joins in on the action and carry the price further, the market is likely to reverse shortly after reaching that point. For example if a MM or a large operator suspects that there are orders sitting just above yesterday’s high, then basically he knows that what he buys below yesterday’s high, he will be able to dispose of at a higher price because once he moves the market just beyond yesterday’s high a number of buy orders will enter the market. At this point, once the operator disposes of his original line he is very likely to sell short a significant amount of shares, and so unless there is enough buying from the outsiders to take care of this supply, the market is likely to reverse. This is just one scenario of many, however, I do think that the logic is peaty similar in most cases.

Many of the breakouts are real, such is the nature of market dynamics, however, when the market is in a consolidation or in a congestion it’s somewhat easy for the big operators to make their profits by running the market back and forth. Actually, if your stops are constantly being hit, it may be a sign that you are in a congestion. Personally, I try to stay out of the market as soon as I suspect that I am in a congestion, and wait for a good indication that the market is beginning to trend again.

To protect myself, I often do not trade the first breakout of the natural support or resistance, or the congestion. Personally, I’d rather wait for a correction or a second time through. Such strategy is much more conservative and will prevent you from taking many traders, however, IMO I think that being patient and waiting for a high-probability setup is essential if one is to achieve consistent success in day-trading.

Bastiat8
 
Quote from jackedup:

European Stock Exchanges are fully electronic, bypassing all these corrupt middlemen and scammers, Why haven't we followed suit?
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Take a look at this site

http://www.bullinvestors.com/isb/arca_ecn_trading_book.htm

and bring up an active stock, try FORD, a stock that has a huge short position, trades way more that it should by any reasonable standard, and usually moves in 1/2 point increments when it moves.

Now, bring up your level II and partition the ARCA/inet quotes on the same page. Now also understand that there are many other bids/offers that you cannot see that also represent orders to be filled. Now, imagine hundreds of guys like you and me that are looking at this stock because of it's volatility.

Now, enter a market order to buy or sell this stock. I use ETrade and I can tell you I get a report back in a split second - no MM could have seen my order and traded the other side since the other side was done electronically.

My point is - we are fully electronic now - Yes, limit orders can be gunned against, but, by both you and me and all the rest of us as well as the MM's.

I was a MM before level II was introduced (tells something of my age) and I can tell you, MM's do very well because they see order flow; not because they play with your stops any more than I play with your stops (which I do often).

Hope this helps clear your suspicions. Regards, Wayne
 
Quote from Threei:

.......

On this, let me excuse myself from this topic; the only purpose of this post was to avoid impression that my description of MMs behavioral patterns has anything to do with idea of them gunning for particular accounts they identified as daytraders.

Vad [/B]
More...

No one with any experience believes that individuals are being singled out, though in the past certain daytrading shops like Datek(old not retail) may have been . Since they were gaming the MM's more than the other way around, they didn't complain (much).

What do you make of the recent games/outrageous price manipulation in COI ?
 
Quote from stock777:

No one with any experience believes that individuals are being singled out, though in the past certain daytrading shops like Datek(old not retail) may have been . Since they were gaming the MM's more than the other way around, they didn't complain (much).

What do you make of the recent games/outrageous price manipulation in COI ?
More...

Sorry, I trade NASDAQ exclusively, no idea about COI... listeds with their single-person control over trades (diluted to certain degree of course by introduction of ECNs etc) is somewhat different game. My post referred to NASDAQ market makers. The very structure of NASDAQ (everyone against everyone else) and instant electronic executions make it simply impossible to track someone and gun for him. I know that's what you said, it's just that number of posts earlier implied just that.

That said I have a funny story about singling out an individual by market maker, although it was done in different way and with different purpose. Will tell it tomorrow when noon doldrumds are upon us.

Vad
 
Here is promised story. Disclaimer: by no means it confirms the notion of MMs tracking down counterpart's account, in this case MM traded directly with customer (me).

1999, I traded through Castle Online, now defunct. They offered direct access software, quite nice for that time. At some point they introduced garanteed execution in partnership with NITE. NITE took obligation to fill your order at the marketable price (best offer or bid) no matter how many shares where theye and by who. If there is an offer for 100 shares at 20, you send order to NITE for 1000, you get it instantly. The idea was not really new and quite attractive: since most traders lose money to the market by filling their orders in the marketplace then they should lose it to NITE by filling thweir orders out of NITE inventory. What worked for online brokers with selling order flow though didn't work quite well with direct access; we were killing NITE by using arbitrage: buying at the offer from them and selling to ECN that tried to bid above current offer because SOES queue was clogged (oldtimers know what it all means :)). When Gilder report would come out propelling NOOF 40 points up in one day (again, oldtimers should remember Gilder), there was no way to get a fill but with NITE - no problem.

So it was all good for several months until NITE canceled the deal. But before they did they tried to make money in one more way - by shadowing successful traders. Since orders went to them directly they could identify an account and they started trying to do the same. Every time I put bid in, ECN for double amount of shares appeared next to me (if memory serves me right it was BRUT). When I noticed it I tried to check it: canceled, bid again changed price - that bid repeated my action to the letter instantly. Speed left little concern that it was programmed. I tried to track mirroring executions on T&S in cases where I hit the bid or offer but that was kind of hard to tell with all the scrolling prints.

There... my one and only contribution to conspiracy theories :)

Vad
 
Brother threei, you just got my mouth watering thinking about those wonderful days of pre-decimalized scalping for easy 1/8s and 1/16s... turn back the clocks, I say!!

It's a real pity that those arb opportunities are, alas, no longer with us :mad:
 
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