It is important to understand the dynamics of manipulation in order to understand why markets move. I will share with you some of my findings of which some have been confirmed.
First, lets start off with a quote from Soros...
"Economic theory is built on the concept of equilibrium, and that concept is in direct contradiction with the concept of reflexivity… The concept of reflexivity needs a little more explication. It applies exclusively to situations that have thinking participants. The participants’ thinking serves two functions. One is to understand the world in which we live; I call this the cognitive function. The other is to change the situation to our advantage. I call this the participating or manipulative function. The two functions connect thinking and reality in opposite directions…
In the real world, the participants’ thinking finds expression not only in statements but also, of course, in various forms of action and behavior.
That makes reflexivity a very broad phenomenon that typically takes the form of feedback loops. The participants’ views influence the course of events, and the course of events influences the participants’ views. The influence is continuous and circular; that is what turns it into a feedback loop."
When I first got into trading I knew some people who still operated stock manipulation rings in penny stocks to this day. They would decide upon an accumulation level in the stock and accumulate a large position and it would take a couple months to accumulate a sizeable position in a low liquidity penny stock.
At that point they would start running out internet ads and newsletters. The group would all agree upon a set target price for distribution and a set minimum rate of ascent to be maintained. It is most effective to reduce volatility and prevent any dips as a penny stock is raised steadily bidding it up.
More newsletters are sent out again and again and more ad's are sent out and people really start getting sucked in. It's not a simple business. The group has a certain expenditure in advertising dollars and a large amount of shares that need to be distributed at good prices.
Toward the very end of the trend the move is accelerated suddenly with very heavy bidding by the manipulators and a last global blast of emails is sent out. Once the target is reached the distribution begins fast and hard!!!
I have never personally been in the business of illegal small stock scams but know people that have run them.
The one key point to take away from this is that a penny stock manipulated upward generally takes weeks and months to settle back down to equilibrium even after the manipulators have distributed all their shares. It rarely goes all the way completely back down to the initial accumulation levels.
Now. Lets talk about more standard less illegal manipulation... Large orders, trend acceleration, and floor setting(iceberging). Who here has experimented with this?
I have done experiments in small stocks with large orders. I was able to effectively manage and turn trends with large orders for hours. Sell 100k at market in a very small active stock with traders in it during a slow uptrend... Watch the thing fall downward 30 cents through hours afterward even though your order only slipped a couple cents. Then accumulate your position back on again!
Soros theory of reflexivity and it's application in financial market manipulation isn't actually very complicated. The participants perception is readily shifted. I have attached and image to show the real effect of large buying and selling on the markets and here is on of my favorite quotes form market wizards!!!
"==== How does your current trading for your own management firm differ from your trading at Salomon?
====
At the moment, I'm trading a lot smaller than at Salomon, which is a disadvantage.
==== How is large size an advantage? You're kidding. ====
No, I'm serious.
If a big buyer comes in and pushes the market 4 percent, that's an advantage.
He still has to get out of that position. Unless he's right about the market, it doesn't seem like large size
would be an advantage.
He doesn't have to get out of the position all at once. Foreign exchange is a very psychological market.
You're assuming that the market is going to move back to equilibrium very quickly-more quickly than he can
cover his position. That's not necessarily the case. If you move the market 4 percent, for example, you're
probably going to change the market psychology for the next few days.
==== So youre saying size is an advantage? ====
It's a huge advantage in foreign exchange."
First, lets start off with a quote from Soros...
"Economic theory is built on the concept of equilibrium, and that concept is in direct contradiction with the concept of reflexivity… The concept of reflexivity needs a little more explication. It applies exclusively to situations that have thinking participants. The participants’ thinking serves two functions. One is to understand the world in which we live; I call this the cognitive function. The other is to change the situation to our advantage. I call this the participating or manipulative function. The two functions connect thinking and reality in opposite directions…
In the real world, the participants’ thinking finds expression not only in statements but also, of course, in various forms of action and behavior.
That makes reflexivity a very broad phenomenon that typically takes the form of feedback loops. The participants’ views influence the course of events, and the course of events influences the participants’ views. The influence is continuous and circular; that is what turns it into a feedback loop."
When I first got into trading I knew some people who still operated stock manipulation rings in penny stocks to this day. They would decide upon an accumulation level in the stock and accumulate a large position and it would take a couple months to accumulate a sizeable position in a low liquidity penny stock.
At that point they would start running out internet ads and newsletters. The group would all agree upon a set target price for distribution and a set minimum rate of ascent to be maintained. It is most effective to reduce volatility and prevent any dips as a penny stock is raised steadily bidding it up.
More newsletters are sent out again and again and more ad's are sent out and people really start getting sucked in. It's not a simple business. The group has a certain expenditure in advertising dollars and a large amount of shares that need to be distributed at good prices.
Toward the very end of the trend the move is accelerated suddenly with very heavy bidding by the manipulators and a last global blast of emails is sent out. Once the target is reached the distribution begins fast and hard!!!
I have never personally been in the business of illegal small stock scams but know people that have run them.
The one key point to take away from this is that a penny stock manipulated upward generally takes weeks and months to settle back down to equilibrium even after the manipulators have distributed all their shares. It rarely goes all the way completely back down to the initial accumulation levels.
Now. Lets talk about more standard less illegal manipulation... Large orders, trend acceleration, and floor setting(iceberging). Who here has experimented with this?
I have done experiments in small stocks with large orders. I was able to effectively manage and turn trends with large orders for hours. Sell 100k at market in a very small active stock with traders in it during a slow uptrend... Watch the thing fall downward 30 cents through hours afterward even though your order only slipped a couple cents. Then accumulate your position back on again!
Soros theory of reflexivity and it's application in financial market manipulation isn't actually very complicated. The participants perception is readily shifted. I have attached and image to show the real effect of large buying and selling on the markets and here is on of my favorite quotes form market wizards!!!
"==== How does your current trading for your own management firm differ from your trading at Salomon?
====
At the moment, I'm trading a lot smaller than at Salomon, which is a disadvantage.
==== How is large size an advantage? You're kidding. ====
No, I'm serious.
If a big buyer comes in and pushes the market 4 percent, that's an advantage.
He still has to get out of that position. Unless he's right about the market, it doesn't seem like large size
would be an advantage.
He doesn't have to get out of the position all at once. Foreign exchange is a very psychological market.
You're assuming that the market is going to move back to equilibrium very quickly-more quickly than he can
cover his position. That's not necessarily the case. If you move the market 4 percent, for example, you're
probably going to change the market psychology for the next few days.
==== So youre saying size is an advantage? ====
It's a huge advantage in foreign exchange."
Attached Image (click to enlarge)
