Markets aren’t manipulated, people are.

Whenever I see bars like today when the AP hacking took place, I know that some people got taken out or were at least seriously maimed. It is the unfortunate part of this job.  One of many bad things.  But I also know that some people made money. (I was away from my desk.)

Here is part of what made the difference:

  • Anything can happen.  If you are new to trading these are just words they are not hard coded into your process, thoughts, budgeting, etc.  
  • How we handle wins and losses. There is a tendency that when we lose to blame it on anything else but ourselves, socialize the losses.  When we win it was our hard work, skill, smarts; privatize the wins.
  • Chaos is an advantage.  If you were to ask me what the most important skill in times of chaos I would be say the ability to make money or lose less on the random moves.

These three things are all important in not getting blown out and maybe taking advantage of it. If you think it can happen you will have some sort of a plan.  If you believe you have control of the damage of the outcome, you will work to improve it.  If those two things are available to you, you will see a way to take advantage of it or at least get out of its way.

A couple of other things.

Think before you retweet.  I hope we get better with this but it is going to take some time.  The reason why social media works is because sharing important and interesting information shows how smart, connected, interesting we are or think we are.  The downside is pretty limited at this point but I hope that changes before we are forced to change.

Depth of market (DOM) may have correlation to liquidity but it is not liquidity.  Liquidity is the ability to get the price you want with the quantity you want or an acceptable (whatever that is) range. DOM is the intention to place an order.  It is like the absent dad who says he is going to show up at your baseball game, it does not mean he is going to show up.  People who have otherwise shown to be smart people disagree with me but I think volume is more important than the intention of volume.  Everything has a breaking point and for the most part the E-mini S&P 500 has held up pretty well.

Survival is important, you can’t do anything when you are dead.  Markets are made not only by different opinions but different time frames.  With that being said I have seen a lot of people advocate not using stops and I am not convinced but I guess that depends on times frames.  For my time frame losses define a trader not the wins.  I remember a trader who kept buying the breaks and by the end of the day he had given back 2.5 million or about a years worth of work.  He sold the low. The mechanics of the market are cruel in that way.

Pick your battles against HFT.  Not every case is the same.  Know your audience.  You can scare people away but at times is shows your naivety.  No one wins and you will become an afterthought. There seems to be a myth circulating that HFT makes money every time. I was wrong to criticize the saying as untrue, “they provide a glass of water in a monsoon, but when you really need them to absorb sell orders, they’re on the sideline, buffering.”  It is the same way anyone reacts, we all have limited amount of funds and convictions.

Markets aren’t manipulated, people are.  Should things like this happen, probably not.  Has it happened before and will it happen again, YES. This is what the market promises. Now I am empathetic to those hurt and I am not speaking from a soap box.  We have all been f*cked, what are you going to do about it?  Have you ever made money when others have been f*cked? Improvement is not always getting to the goal but getting closer.  I outlined some of the ways to position yourself mentally to protect yourself if you are a short term trader.  I am constantly concerned about the health of the market and it is always at the top of my mind.  But all of these things are not new despite our awareness of them.  I don’t have an answer other than for the individual to protect themselves.

Here are some more links:.

A more indepth look at what happened.

Zerohedge via Nanex on DOM and VOLUME.

Here’s How The ‘Hack-Crash’ Looked To A Trend Follower. 

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One Response to Markets aren’t manipulated, people are.

  1. […] The implications of the AP fake tweet flash crash.  (The Reformed Broker, The Minimalist Trader, , Trader Habits) […]

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