Bulls To Bears: Trading and Market Manipulation

Stock Market Manipulation is a malformation of stock prices by brokers or groups or institutions. Market manipulators make the price of stock go up or down when they want the ability to buy or sell large quantities of shares at the best prices for them. "After all, no price is too low for a bear or too high for a bull!"

When the "one that sits behind the curtain" Level 3 Traders/Market Markers, (Level III highest level of quotes system provided by NASD member firms, who have the ability to enter quotes, execute orders and change prices), when they start accumulating large amounts of shares in the open market- that buying tends to have an impact that usually moves the stock price of the intended security higher.

Now, that is not good if you are buying large amounts of shares and you don't want to pay a higher price per share for them. So, by the time they're done buying a few blocks of stock, the price could have gone much much higher in process, and the profit they were hoping to make on that block has decreased before they done buying. The same if he is trying to sell, it would drive the shares down lower and he would get less money per share. That's not a smart trading philosophy either, if they want to get better price on the sell side.

To accomplish this kind of an objective a shrewd trader will often dump a sizable position of their stock (acting bearish on it) first into the open market to try to achieve a result. "Panic Selling" which will cause the stock to decline further.

Ponder this scenario for a moment: A Market Maker sells a significant quantities of a particular security they make a market in  and the stock price begins to nose dive, then other stock holders get spooked and they also begin to sell their stock as well. Now everyone's panicking and the stock is down 30%. The manipulator wins and can now try to quietly buy back this stock now without being noticed (bullish), and without pushing the price back up again and/or if the manipulator sells significant quantities of a stock (let's say 100,000 U.S. Steel shares - NYSE:X @29.00) and the price DOESN'T go down, then that means someone else out there must be buying similar amounts of X's stock as it comes onto the market. - "some other big trader somewhere wants this X stock badly at this price too, so share prices are likely to spike." as the price of the stock starts to trend higher (as the first manipulator keeps buying it, supply will start to become less, so the price will inevitably continue to rise), you often find the manipulator then starts selling again. Why you ask?   
  1. He wants to know if the other manipulators out there are still interested in buying the stock. If so, then the price shouldn't fall by much; the other manipulators will be buying up the stock that the 1st manipulator is selling. That's what the 1st manipulator wants to see happening; he needs other big traders to help drive prices higher, as otherwise there will be no one for him to sell to later on.

  2. The manipulator also wants to know if there are any novice stock holders out there who are on the point of selling, who could be convinced to sell if the price starts going down further still. Price moves down; those uninformed stock owners sell their stock; the manipulator gets to buy them back without moving the market, and he does so at a much cheaper price than if the stock price had kept going up. Once the manipulator has consumed all the supply of stock out there, anyone who wants to buy can only buy from the manipulator, who can then start to raise that price on the stock.

    (FYI, you notice that I mentioned US Steel (X); that was just a stock I chose today for this newsletter article, and we sometimes follow X or trade it, but at this time we don't own any X common stock or X options at this time, for full disclosure.)
Both manipulators involved have very clear intentions, to move the price of that stock up and then distribute shares that he has purchased in order to take the stock price higher. There are occasions when the manipulator would also be asked by a group of investors to sell the shares held by them at higher prices along with the shares that he might have accumulated as well.

Manipulating stock prices can happen quite easily, even unintentionally and it takes place more often than you think. Achieving it in a perfectly legal way is no more difficult, depending on how much trading power one has. Individual stock investors just don't have ready access to these types of techniques and consequently, they often end up on the wrong and losing end of these scenarios.

When trading situations like this, a little knowledge can go a very long way and that is why having a battle tested company like BullsToBears.com in your arsenal makes sense. We scan the market for these algorithms when they start a feedback loop with each other, this typically results in the wild swings up or down. So, we issue the buy alert and once markets moves higher by a significant margin, other traders will jump in to correct it, because they will think this is an anomaly out of which they can make money, so the stock continues to move higher and our subscribers at BullsToBears.com are very magnanimous about the situation and sell them back our stock we just bought 15% - 20% - 30% cheaper a few days/weeks ago.

These type of Market moves happens often and is not a securities violation. In fact many groups and institutions, even including but not limited to the federal government, engages in these market manipulations. What separates legal manipulations, from illegal manipulations like "spoofing the market" is the quality of the information distributed by the entities who are engaging in the manipulations. In laymen's terms: As long as the information is made readily available to the general public by the parties involved and, is truthful and accurate, there is generally nothing wrong and no red flags are raised with these trading activities.

This stock market is complicated, the future is uncertain and periods of turmoil and confusion are to be expected. There’s nothing you can do about that. Just get used to it, learn how to adjust your trades and notice the anomalies. When there is nothing but fear in the air and investor confidence is very low, stick to your convictions, a prudent investment strategy and a long-term focus will help you practice good trades and stay the course. When these times arise and you know they will, disciplined investors  like Bulls To Bears subscribers will have the opportunity to take advantage of these manipulated miscorrelated stock prices.

When you look at the market, and all you see is red stocks and scariness. Remember to look at it as your investing from a smarter perspective, imagine it as a long term buying opportunity. That is your goal. You should look at investing through nearer to longer term horizons.

Granted, short-term volatility and selloffs are tough on the nerves and psyche, especially when bad stories captivate the news and everyone's scared and panicked and running for the exits. Learn from the pros on what our years of stock trading has taught us,  that this is a better time to be a stock buyer, and not a stock seller. Just Imagine yourself having the insight and the opportunity to go back in time and buy some great stocks like Amazon, Priceline and Apple after the markets collapsed in '07-'09? If you had the wisdom and had placed some good trades then... instead of running for the exits? How different could your life be today? So, be bold and create your own future!

So, next time the media outlets and Wall Street news stations are bashing stocks and there is wild market swings and higher than normal volatility, take a breather. Think hard and smart! Because when they do this, they try to get your emotions involved. When you start acting based on fear and your emotions kick in, they win, you lose! When your emotions enter into the trade you start to make bad decisions both in and out of the stock market.

We have a  idea! Strive to be a smarter trader and experience our trading program for yourself. Learn how Bulls To Bears can help you to narrow your focus onto what we know and believe to be better trade setups. Take advantage of legal market manipulations that happen daily and learn the laws of supply and demand with our 14 FREE DAY TRIAL.

Stop spending so much time trying to figure out what stocks to trade. We’ve got that covered. Get access to our FREE TRADING NEWSLETTER and discover better tip's like this article and others on how you can reduce your downside risk.  Know when to add to good, yet cheaper, stocks in your portfolio that are down - instead of selling them and start looking into more profits for yourself.
 
We hope to see you soon!  Till next time... Happy Trading!