1. What is Market Manipulation?

There are many forms of market manipulation.
In this chapter I will discuss the most common.
Also I will discuss in this chapter the fake outs and how you can recognize / prevent them.
Because the most often made mistake of traders time and time again are the fakeouts.
And I know as best how painful it is when you’re stopt out again in a fake out.

What Is Market Manipulation?

Market manipulation is intentional deception by stock brokers, traders, analyst or bankers in an attempt to misrepresent or alter market prices. Competition and profit are both at the heart of market manipulation. Sadly, there is a general consensus that Wall Street brokers are willing to do anything for a profit, even if it hurts other investors in the process. Market manipulation is illegal in most countries; in the United States, it’s outlawed under the Securities Exchange Act of 1934.

Market manipulation comes in many shapes and sizes. The following are a few examples of different types of market manipulation.

  • Churning – An attempt by a stock broker to increase activity in a client’s account to boost commissions by buying and selling orders at the same price. This activity is intended to drive up the price and attract other investors.
  • Ramping – Creating activity or rumors intended to raise the price of a stock.
  • Wash trading – Generating activity to push up the stock price by selling and re-purchasing the same security.
  • Bear raiding – An attempt by a broker to short sell a security and drive the price down, allowing it to be bought back at a lower price and thus make a profit on the difference.
  • Cornering – When enough of a certain stock, commodity, or other asset is purchased in order gain control and establish the price for it.
  • Insider trading – This is perhaps the most well-known type of market manipulation; it refers to when insiders with confidential information about a company use that information to their benefit.

Market manipulation is part of the game.
The best way to think about manipulation is to accept it as part of the market structure.
As retail investors, we cannot control or change how the big boys play the game.
Understanding that manipulation can work for or against you, depending on your position, helps remove worry about these sometimes unethical or illegal practices.

Also, it is critical to understand that stock market manipulation is mostly always in the concise term.

In other words, it has the most adverse effect on day traders and other short-term investors.

Make no mistake, long-term concentrated manipulation can and does take place.
However, investors can definitely profit from long-term manipulation, as it results in price trends that can be exploited.

The best way to protect yourself from market manipulation is to think long term. Understanding the types of manipulation can allow you to make better decisions when investing.

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