CR8 TA Thread, page-420

GG

It is not market manipulation because it is not creating a false market.  The orders were real and the sales were real so tell me what exactly created a false market?  A false market is one where spoofing or order laying is used, I didn't see any of that yesterday, just an aggressively seller and maybe buyer, which is perfectly legal.

Below is a great example of how the market really moves and how people create supply to enter positions.  Futures and stocks are different because it is harder to be short in stocks but the principle is the same.  I have rephrased the extract from memory so it may not be exact but it will give you a basic idea of how large traders operate.  I hope it makes sense.

Harris Brumfield was a legendary futures trader who started out trading in the pits and was one of the first to embrace electronic trading.  In fact he ended up becoming the owner of TT technologies which is the number 1 trading platform used by futures traders.  To cut a long story short Harris found electronic trading to be a lot easier to move size, trading in the pit every trader knows what every other trader is doing and what size they are holding.  If Harris wanted to be long 10,000 contracts he couldn't purchase that size without the whole pit knowing and subsequently moving the market.  Trading electronically you can remain hidden, so Harris could accumulate 10,000 contracts long without anybody knowing. Now this next part is very important so pay close attention!  If Harris wanted to be long 10,000 contracts he wouldn't simply go out and buy 10,000 contracts, even breaking up the order into smaller lots it is too large of a position to accumulate without distorting the market, he needed liquidity and panic in the market.  How? He would start by shorting 10,000 contracts, keep in mind trading using a DOM (look up trading DOM if you don't know what this is) in futures markets makes this simple.  While shorting 10,000 contracts he would be working orders  on the bid side of the DOM ready to start buying back his shorts.  He wouldn't just dump 10,000 all at once he would aggressively hit the bids and start a panic which would in turn cause traders to go short and further push the market down.  Traders who were long would also start to puke out look for exits created in more supply.  Now remember he has orders on the bid side so in the panic he is buying back his shorts, remember he wants to be 10,000 long but he starts out 10,000 short.  Because he has started a panic and drawn out liquidity he is able to cover and reverse his initial position, net result is he is able to cover his 10,000 short and get flat and then reverse to be net long 10,000.  Importantly the process starts to squeeze the shorts as he starts buying back and moving the market back in the direction he wants.

Now I am not saying that is what happened in CR8 yesterday.  These days plenty of large traders use algo's and all kinds of ordering software but it is important to be aware of how the market can be legally played.

s.loeb