PLEASE READ THE FOLLOWING POST FROM LAST AUGUST, AND MY RESPONSE FROM YESTERDAY... -T.B. Quote from dnaj65000: Joeboy, Supply and demand is viewed in realtime through the bid and ask size (on Nasdaq Level II or NY Open Book with a 10 sec delay). However, realize that MMs and other professional traders can easily manipulate the book to make it appear like there is buying or selling demand. For example, say you are trading NXTL and I'm a professional trader trading the same stock, looking at the same level II screen you are. I short 1000 shares at the start of a futures sell off. I then send in a buy to cover 9 cents down. I then send in a 5000 sell short 3 cents up from my entry price on INCA, and 3000 shares sell short 3 cents up on ISLD, and another 5000 shares 4 cents up on ARCA. As I watch the futures sell off, I don't have to worry about getting filled. What I do is create the illusion that there is a lot of supply. Panic Pete sitting in front of his computer on his Ameritrade account sees the size and sells his long. With enough people like Panic Pete, it will push the price down so I can cover 9 cents down and make a quick $90 profit. At any time if I see the futures turn up and rally, I cancel my orders with the press of a single button and I'm safe. If the futures turn before my 9 cent target, I can hit the offer from Panic Pete and buy his stock with a 5 cent profit. If you're trading the emini S&P's don't trust the size you see there either. There is so much program trading that submit and cancel their order that you can go nuts trying to figure out how it works. I often see that during the choppy times, price seems to gravitate towards size, not away from it. However, in trending fast markets, size seems to be an indicator of real supply and demand. That's just my observation. What I learned as the best indicator of supply and demand is reading the candlesticks. An individual candle can tell you 60% of what you need to know to give you a high probability bet on the next candle. Take in context the previous candles in formation and you have more information thus higher probability. I know that candles are formed as price is printed so it is a coincident indicator...sort of like reading the tape. So if you want to understand supply and demand, which ultimately drives price action, read up on candlesticks. I think you should read up on the basic and intermediate literature on candles and then form your own opinions on patterns based on what you trade as opposed to reading a book that will bias what you think should happen. Best of luck, DNAJ65000 -------------------------------------------------------------------------------- Hi - regarding your NXTL example, I see that kind of thing all the time in NASDAQ stocks. Specifically, orders being put into the system that effectively create the illusion of supply/demand (even if deceitful illusion is not intent of the person who entered the order). That kind of "fake order" strategy seems to be pretty widespread. Technically speaking, could placing such orders in the system be considered market manipulation? One could argue that its not manipulation, as you are subjecting yourself to the risk of those orders actually getting filled... -T.B.
If the phony orders to keep the market down were not in fact a true indication of a short term market direction then you could trade against them and make money. Big traders are not competing with small traders but rather with other big traders. You can trade circles around big traders without showing your hand (now that commissions are near zero)but they can not make a move without being detected. I am not saying that the market is not being pushed this way or that way from time or that size does not have some advantages but to think that the market is being manipulated all the time is making you powerless and you can not win from a mindset of powerlessness.
Don't kid yourself, you can't just fade the bluff and expect to win consistently. The spread and transaction costs willeat up most of what ever marginal profit you may make. Any they don't play those games on thin stocks where it may really hurt them, and help you.
Anything which affects price can technically be considered "market manipulation". It is IMO impossible to come up with a definition of manipulation that does not encompass normal trading patterns.
If one considers a concept such as "market manipulation" in their trading methodology, I would submit that that trader is basically "paralyzed" from making successful decisions.
I agree with waggie- all those offers should be seen as liquidity not as manipulation. You could do the same if it were part of your strategy. Perhaps it is just computer arb programs anyway.