Market Manipulation

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If you look up Wikipedia, the definition of Market Manipulation is a deliberate attempt to interfere with the free and fair operation of the market and create artificial, false or misleading appearances with respect to the price of, or market for, a security, commodity or currency.

This article is to inform everyone that market manipulation exists and is very real. The size of the market is of no relevance. All markets regardless the size is manipulated. I know one might say “are you crazy, a market like the foreign exchange with transactions of more than 4 trillion US Dollars a day cannot be manipulated. I may also boldly claim that every single market is manipulated to a certain extent no matter how strong the watchdog institutions are.

Price Manipulation

Let me just show you a simple proof of price manipulation. If the market is not manipulated, you would not see this.

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If the market is random, the price would not be able to react exactly to the diagonal trend line in the diagram above. Every time the price hit the trend line, it bounces off the trend line. If there is nobody or computer programs monitoring the level, I sincerely doubt the price would react exactly to the red trend line. This is not all, look at the diagram below.

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The same trend which started in July to August acted as a resistance point B after it was broken at point A. This same trend line is valid 3 months later. So if the price is random I am very sure the price would not behave in such a way. This particular trend line is being monitored and price off course will react to it.

 

Logical Price Manipulation Levels

When I was working in a fund management company as a market analyst, one of my task was to call the foreign banks that are in partnership with my company to discuss on market level and where the stops are. During these discussions I found out that the banks do see where your stops are and if your stops are within their permissible movement level, it would be taken out. However I did not have the opportunity to know how they (market makers) set those levels. All I know that this means that there are levels in which price will react to and it took me many years to figure those levels logically. I have to admit that there is NO way one could get the manipulated levels ACCURATELY.

 

 

How do the market makers manipulate?

There are many ways in which the market makers manipulate. One of the way is through misleading news. Recently Warren Buffett’s Bershire Hathaway bought H.J Heinz Company (NYSE: HNZ) for nearly USD28 billion. Goldman Sachs had to be aware that this deal is brewing and yet they maintained a “Sell” rating on Heinz right up until the deal was announced in February.

 

So a big bank like Goldman Sachs tell you to sell, clients would sell and guess who are the buyers. Yes you guess it right, most probably to the bank in question which is Goldman Sachs. Heinz rose from just over USD60 to USD72.50 on the day the deal was announced.

Meanwhile, the Securities and Exchange Commission (SEC) is investigating a sudden spike in Heinz options trades that originated from a Goldman account in Switzerland one day before the deal was announced. Whoever made the trades pocketed about $1.7 million.

 

How do you trade in a manipulated market?

Never go against a trend

Firstly, Never and I repeat Never go against the trend. The Government of Japan for example have been actively devaluing the Yen and any who sold the USDJPY would have suffered losses. I am sure trading indicators like moving averages, MACD’s and Stochastic to name a few had been showing sell signals or overbought signals. By now, one would know those signals did not mean that the USDJPY would drop.

 

Subscribe to Price action

We only look for price action to determine the market sentiment and also market levels. Indicators are lagging and the move is most probably midway or ending when a signal is shown by indicators. Price action will reveal the logical support and resistance of the market.

 

Skip trading pairs during major news

I noticed that whenever there is a major news pending price either get stuck in a range or trades at both extreme ends of the support or resistance. I prefer to skip trading those pairs until the news is over and the true movement reveals itself.

 

Strong Money Management

No matter how smart one is, you can never outsmart a market. I believe that the market is manipulated and traded by computers. Computers do not execute trades by mistake and they follow a set of rigid codes. Humans however need to rest and cannot maintain the high level of energy and concentration to trade the market in and out. So the best way is to follow a strict money management guideline. I will write more on money management in future articles as I have a very different approach to money management. Once you have set your money management guidelines, your trades has to follow it religiously

 

Know when to stop

You have just grown your account 20% this month and your target was 10%. I would recommend you to stop trading and spend time to nourish yourself and also spend time with your family. A stable and healthy mind and body will definitely attract more good things happening to you.

 

Give back

Donate 5 – 10% of your winnings to help people in need. You will never know how your charity will work wonders in this world. It just will! The feeling of giving and seeing how your kindness benefit the people around you will give you that extra motivation and hunger to see more of it. This kind of greed is a good greed.