Trewesta Anamoly

right... its cheaper by narrow stop loss range, but multiply the narrow range by big volume of traders, now we are talking about big sum of money ! Now consider price slides 20 times the narrow range, after hunting stop loss, MM should have substantial short positions grabbed from retail traders ! To mark up the price MM has to buy few shares to loss to shake out the retail traders usually with a thin volume and ends grabbing huge volume of short positions ! It seems you are not aware that MM or brokers can see all your orders through them, this means they can also see a huge block of sell orders gathering around certain price levels. Retail traders don't have any such special order book info (except for best 5 bids). anyways little googling should help: http://www.investopedia.com/terms/s/stophunting.asp

Oh Nicky, no one would attempt to bankrupt themselves This practice handsomely benefits Market makers (MM), at the end of the day MM has essentially bought all the short positions way cheaper and is going to ride a steep fall of the price (as he has already seen a huge pending sell order in his order books!). So if they are trading for client or themselves... they are going to end with profits.

Market makers can make markets on both bidding side and offering side and provide liquidity service to the market. So usually they will have a huge reserve of stocks for this purpose and also they have big clients to service for . Flushing out buy orders with higher prices (i.e high enough to hit the stop loss) by big traders is very doable as the stop loss range for retail trader will be much narrower as retail trader can't withstand huge losses ! You can observe wide bars (i.e high low of bar is substantially wider) or small spikes (called 'tests') in chart...

Lets say a trader figures out prices are going to fall and establishes a short position with a stoploss order to buy back if price rises for some reason. Market makers can see the traders (in reality thousands of such traders') stop loss entry and decides to artificially mark up the price just to hit those stop loss orders, transferring their short positions to market makers ! Now our trader despite his best judgement closes with a loss and clearly its a trick by market makers ! Although there isn't explicit lying happening here but the results are exactly like the trader has been lied to through action instead of words ! I agree its the sole business of the trader to judge the actions of other competitors properly but still....

Hi softwareNerd, Thanks for your inputs! I have couple of takeaways from your post. I am not other traders' agent, so my actions have no obligation of any sorts to them, except for legal contractual obligations. Marking up/down prices to sell/buy is a type of negotiation rather than misrepresentation of any actual fact ! you are right, corning a big liquid market for *longer period* is nearly impossible, but I think there are situations where a ring of big investors can collude to markup the price temporarily just to suck in the losers before the price takes a nose dive after few bars. Volume spread analysis deals with this subject matter. When I said exploiting the behavior, I didn't mean to corner the market, but just to trade with 'smart money' once they have sucked in the herd at top/bottom by their artificial 'mark up/down' strategy.

I posted the following question to http://www.peikoff.com/ Q&A section. I would like to hear from you guys too. so here is my question: -------------------- Stock market and ethics: Market makers hunt for stop loss orders shaking weak holders out from a profitable position. Big institutional investors often artificially mark up or mark down prices just before a big price move in opposite direction. What do you think about the above behavior? If at all I make any profits, I think that's going to come from exploiting the above behavior, will that make me an immoral predator? How would an objectivistic trader behave in such a zero sum game with deception as one of the tactics!? Losers pay the winners in this game, does that justify deception of above type!? ----------------- Thanks for reading this!