The popular TV program Person of Interest starts with the phrase: “You are being watched.”
A byproduct of this magnificent information age is that governments, companies, hackers, and nearly anyone else can watch you.
No doubt there are benefits to this. When you know your customer, you can improve almost every angle of your business. Service, marketing, communications…
But there are the other factors: the serious violations of privacy, the threats to our very survival, the people who use our information against us.
In the financial world, one of the greatest threats are the large, more sophisticated traders who know what you’ll do before you do it, and have hence learned how to play the system to their advantage.
These are not ordinary investors that position for long-term trends. These are the guys who play off short-term movements to make fast money while others lose it. They watch when most people are buying or selling, where they place their stops, and then they do the opposite. In the short term, the markets are more a zero-sum game, so your loss is their gain. They don’t need the markets to go up or down to make money – they just take it from you!
This is the reason so many everyday traders say things like: “I always seem to be the last one to buy before the markets tank, or the last one to sell before it takes off again.”
You sign up for a trading account and get some neat software to track Elliott Wave patterns, Fibonacci retracements, support and resistance levels, moving averages, and so on. Little do you know, this is child’s play to the big traders. They know what you’re thinking, what your software is telling you, and they use that knowledge against you.
Still, you’re sold. A commercial airs. You open a trading account. You’re going to be your own trader from home. You’re going to beat the pros and retire from your bedroom. Fat chance.
Playing the Devil at His Own Rigged Game
The truth is, almost everything is rigged in their favor. They have better tools…and more maneuverability. They employ high-frequency trading with computer servers that are nanoseconds closer to the data, which keeps them a few ticks ahead of you – and even some larger institutional investors. They have very sophisticated algorithms and software to do this.
Then, most of the action doesn’t even happen when the market’s open. It happens after hours in the futures market that most people can’t trade in. Before the market even opens next, these more sophisticated traders have already decided where it’s going – usually in the first few minutes of trading.
By the time you react, the move has already happened. Then, typically, the markets tread water for most of the rest of the day. One of the worst things about this: the Fed’s zero interest rate policies have allowed these guys to lever up much more massively, up to 30 to 50 times, at very low costs.
Normally, they’d account for 10-15% of the volume each day, there to counter the market’s extremes and actually keep it more liquid and orderly. But now they can account for 50% or more. That means they have more power to create volatility and push against everything you do and assume.
If they see support lower just ahead, they have more resources to bid the market up until all the small traders are scared out and all the stops are hit.
They do the same thing when most traders are too short. They push up the markets, despite the news, until all those short sellers are stopped out. We just saw the mini crash in late August occur in four short days when least expected. Who do you think was behind that?
Then, since late September, the market has gone straight up for no reason. Why? Simply to shake-out all the short positions. Trading the markets is like playing poker against God. Except, the more you play, you realize you’re actually playing the Devil!
Don’t be naïve and think you can outsmart these highly leveraged, sophisticated, and often malicious traders. If you want to make money trading in volatile markets like these – that have not, and will not reward buy-and-hold strategies for many years to come – find a sophisticated trader to be on your side: someone who has a proven system, someone who is doing something the big traders aren’t…
I sure as hell can’t tell you how to beat these big traders… but they can. The odds are stacked against you, but with the right help, you can be more than just a minnow in a shark tank.
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