بروزرسانی: 16 آذر 1404
Understanding Market Manipulation and Stop Runs
Notice that there is a bearish engulfing candle that has swept previous highs.\xa0
1. If I use a small position size to cover my stops, wouldn’t my profit also be small?\xa0
The manipulation of the market is due to the need for large sums to be filled in the market.\xa0 For instance, a bank wants to buy 300 million dollars’ worth of stock. It would be difficult for their orders to be filled immediately and often they suffer some losses if they simply execute their order like every other retail trader would.\xa0
Market manipulation is an intentional distortion of price action to deceive market participants through illegal or unethical means for selfish interest.
Here is what they do. Some traders or investors create false information in order to drive the price of a stock up or down, For example, rumors used to make terrible companies look amazing in order to drive the price up.
This could either be to falsely inflate or deflate price. The goal of market manipulation is to capitalize on favorable artificial market movements for personal gain.\xa0\xa0
Similar to Market Rumors or Fake News, another strategy devised to manipulate the market is something called Pump and Dump.\xa0
3. What type of Trader is more likely to fall into the bait of Market Manipulation or Stop Hunt?\xa0
Here is what you should do –
Spoofing is another manipulative tactic used by sophisticated short-term traders to manipulate the market.\xa0 Here’s what usually happens:
Churning is when fund managers or brokers who are in charge of large sums take excessive trades so as to increase their trade commissions. This may not necessarily make their investors more money. This form of manipulation may not necessarily cause harm to general investors in the market, but they tend to cause harm to the individual investor.
2. Pump and Dump\xa0
It is usually easy for the manipulators to manipulate stocks of low volumes or volatility. From the information provided above, you can deduce that it is not a wise decision to buy into a stock of low volume or volatility.\xa0 The best way to avoid this type of manipulation is to avoid new stocks that suddenly skyrocket.
This would sweep the sell stops and fuel the bullish momentum in the market.\xa0 Having said all this, let’s now go into various tactics that these big pockets use to manipulate price.
So, when other investors see the pending large orders, believing that some big sharks would want to sell or buy at a particular level, they would want to trade in a similar direction, therefore placing their trade at the same level.\xa0
Most of the market manipulation has negative effects on short-term traders. They are more susceptible to fake news, pump or dump and so on.\xa0 So, traders such as scalpers and intraday traders.
Let’s look at this breakout trade for example.
If your entries are based on chart patterns, then the stop loss should be placed where the chart pattern is no longer valid.\xa0\xa0
2. What if I don’t set stop loss, would I fall victim of market manipulation?
After the spoofer or manipulator pulls the order, the market increases or drops, resulting in losses for anyone unfortunate enough to be tricked into buying or selling.\xa0 The best way to avoid being trapped alongside many others is by avoiding very short-term trading.\xa0
What they normally tend to do is to induce some bearish pressure in the market by using a quota of their investment fund– say 20 million dollars.\xa0 Thereby, creating some bearish sentiment in the market in turn, making traders take short positions.\xa0 So that they would be able to get in at a lower or more discounted price. When price gets to their desired targets, they then place the rest of their 280 million dollars on their intended stock to buy.
Let me explain,\xa0
Traders, who notice the price volume would be lured into investing due to the increased trade action.\xa0 Wash trading affects short term investors like scalpers and day traders and does not typically affect long term investors or traders, since it does not last long.\xa0 Since wash trading does not have a long lasting effect, therefore, long term investing is the best way to avoid wash trading.
In this section, I would be walking you through 6 major types of market manipulation that adversely affect traders in the market.
If at all you want to trade short term and profit from spoofing, you have to be a sophisticated and experienced trader with the right infrastructure to compete. I however advise that for most retail traders that they do not trade short term to avoid Spoofing.
First of all, individual retail traders do not have a major impact on the movements of price.\xa0 It is those with the big pockets that move and manipulate price action.\xa0 Those with the big pockets like the banks and other big investors, manipulate prices.\xa0
When the market is manipulated, it creates an unjust environment for investors and can destabilize financial markets, if this becomes rampant. This results in the hurting of retail traders who don’t realize these potential threats in the market.\xa0
What is Stop Hunting?\xa0
• Wait for a rejection candles or engulfing candle
The market then hits their stop loss, and almost immediately after taking them out, the market then reverses in their intended direction.
Another important point is to set your Stop Loss at a level where your trade is no longer valid. Generally, the entries for many traders are based on pullbacks, breakouts and chart patterns.\xa0 When trading a pullback, the general rule is for your stop loss to be above previous high or below previous low.\xa0
While other people sell, the price drop allows the manipulator make profit from the losses of others. Bear raiding can occur for days, weeks even months. It has more profound effect on long-term traders.
5. Wash Trading\xa0
In other words, buy the rumor and sell the news.
From the word “corner” in this context, you would understand that it means to have “monopoly” of an asset or a stock.\xa0 Cornering the Market occurs when an individual or a body or group of people tries to gain control of the majority of an asset or a stock in order to direct or dictate the stock or asset price.
Bear Raiding is a manipulative technique employed by large investors to push a share price lower by placing large sell orders. After that, the manipulator spreads incorrect information in the market.
4. Do long term Traders suffer from market manipulation also?\xa0
Minutes or sometimes, seconds before the market trades at their price, the algorithm cancels the orders before they can get executed. This quick act allows the manipulators to gain short term control of the market.
Looking at this from a logical perspective, you won’t fall victim to market manipulation if you don’t set a stop loss. But guess what?\xa0 You may fall victim of losing your whole trading account.\xa0 Because the market might just totally reverse and never return.
6. Cornering The Market\xa0\xa0
For instance, when traders spot a potential double tops like this,
• Let price trade above previous highs or lows
How and Why is the Market Manipulated?
Wash trading is when traders buy and sell orders that oppose each other.\xa0 Wash trading does not make the manipulators profit, nor do they make losses from it. This technique is just to increase the volume of trade so as to make the stock or any financial instrument appear more active than it usually is.
• Confirm The Source :- Make sure to do more research on your own to be sure that the information spreading is from a legitimate source.
One of the most widely known forms of market manipulation is something known as the creation of market rumors. Insiders would spread false information, enticing the vast majority to make certain trading decisions of which they know to be false.
The next question now is, Where do I place my stop loss?\xa0
Obviously, your profit would be small. However, the bright side to this is that your stop loss would be covered.\xa0
Other forms of manipulation
The “pump” comes off when retail masses or investors buys into the stock. This results in the price and volume of the stock spiking higher.\xa0
• When price is approaching a major support or resistance level, the best thing to do is to wait for a convincing reaction on what price is likely to do
Note: stop loss = Liquidity\xa0
Yes! Market manipulation can occur in any timeframe.\xa0 But the higher the timeframe, the less exposed you are to manipulation. And also, the better your trading decisions will be when you are trading on the higher timeframes.
Now, What strategy can you adopt to avoid stop hunting?\xa0
It is usually difficult to make a reputable company look lawfully terrible in order to drive the price down, but that is not to say it is totally impossible.\xa0 Usually, rumors or fake news can heavily affect the price, and pose greater disadvantage to short-term traders.\xa0
How Do You Avoid Failing into the trap of false market rumors?\xa0
Pump and Dump is done by the means of spam emails or messages, groups and seminars.\xa0
• And then take your position accordingly.
منبع: https://forextraininggroup.com/understanding-market-manipulation-and-stop-runs/?utm_source=rss&utm_medium=rss&utm_campaign=understanding-market-manipulation-and-stop-runs
A reasonable distance from the support or resistance would be a very good idea. You can employ the use of Fibonacci Retracement tool to assist in measuring your stop loss.
By definition, a manipulation zone is simply an area where the market has been manipulated and has taken out certain traders.\xa0\xa0
While the market manipulation tactics I’ve explained above might play a huge role in fundamental analysis, stop hunt plays an important role in technical analysis.\xa0
How Do You Avoid Stop Hunting?
3. Spoofing
Similar to Market manipulation, Stop hunting occurs when large market manipulators target stop loss orders near a level in order to fill their own liquidity needs.
Likewise, breakouts, the general rule is for your stop loss to be below or above the consolidation.\xa0
Immediately the retail investors are committed to the stock, the advocates sell their shares (“the dump”), causing the price to fall.
They will generally like to put a sell order at the resistance level and their stops just above it like this,
And the major technique is strategically setting your stop loss.\xa0 Don’t set your stop loss just above a major resistance or below a major support.\xa0 Since liquidity rests above resistance and below support, price tends to move from one liquidity point to another and that’s where most traders place their stop loss.\xa0
Now, let me give an example.\xa0
Regardless of how large your stop loss is, what matters the most is your position size. And you must understand risk management before you start trading.
A definition of what market manipulation means might not just do enough justice for the question you are most probably craving to be answered –
This zone is called the manipulation zone.
Why and How has the market been Manipulated?
• Fade the initial move. This means to trade in the opposite direction after the suspicious news might have been passed.\xa0
1. Market Rumors and Fake News
These sophisticated traders place large orders at a particular level with no intention to execute them.\xa0 Their systematic means of trading (via algorithms or bots) provides them the opportunity to create high number of trades.
Inside trading occurs when a person who knows something impactful about the financial move of a company before it is disclosed to the public, takes action in hopes to profit when the news is disclosed.
Note: You must be an expert of the market to be able to fade the initial move.