Some more posts about MMs (from RBull, ragingbull.com )
MM'S ON LEVEL 2: GET TO KNOW THOSE WHO MANIPULATE YOUR WORLD...
2 interesting posts from another board.
If you like to find out more about level 2 and MM's, here are 2 posts from NSCT BB by
smakdaddy31.
Re-posted with his permission (his explanations are easy to understand and joy to read).
NSCT posts # 25214 and #25246 for you to ENJOY :
POST #1
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Well, explaining L2 is difficult without a screen to show you examples, but let me try :
One can gauge the STRENGTH of support by observing the NUMBER of market makers that
are at a particular price on THE BID. You see, for the market makers, it is the opposite of what
it is for the investors. They BUY shares at the BID - from investors selling - and they SELL
shares at the ASK - to investors who want to buy.
SO when there are MMs on the BID, that means they are BUYING shares - and the more there
are at one particular price, the more shares they will BUY before they are FULL and then go
OFF the bid. That equates to SUPPORT. Example:
NSCT earlier in the day had 5 MMs on the BID at $2.4375 - that meant that 5MM wanted
shares at that level. Now, for NASDAQ stocks, one can also see the DEPTH - meaning HOW
MANY shares each individualy MM wants at that level. That helps further to gauge SUPPORT.
For OTC stocks, notice that there is always a 5x5 after the bid and ask - they do that so that
you can NOT gauge depth as accurately - it is a SCAM tactic, and just another reason to get
OFF the OTC for serious companies...
STILL, with 5 MMs on the BID at $2.4375, one can say there is excellent support at that level
intraday. I saw that, and decided that given the low volume, support was NOT going to break
down. So I bought shares at the ASK, which was $2.5.
NOW - in a FAST moving market, like the example of NITE and HRZG being on the BID after
FR was announced, the MMs were DESPERATELY trying to GET shares - to entice people to
sell. They do this by walking the price UP so that selling looks more attractive. They NEED the
shares b/c most people were BUYING, so MMs had to GIVE UP shares of they were on the
ASK. Now you might say, "well, then why not just stay OFF the ask?" THe reason is that they
get PAID to make the market. They have to play the game, or else they make no $. In a fast
moving market, MMs usually take a substantial short position b/c they HAVE to (only buying
coming in so MMs are SELLING). What they do is run the price up and fill shares at the ask,
going further and further short, till they dwindle BUYING and get some SELLING b/c people see
the quick profits. Then, as soon as there is selling and buying tapers, they DROP the price fast
on LOW VOLUME selling so that they can induce PANIC SELLING (people who bought at the
high and now see the price dropping panic) and then the MMs get their shares CHEAP -
remember, they BUY at the BID from people PANIC SELLING.....
SO - # of MMs on the BID indicates SUPPORT
Conversely, $ of MMs on the ASK indicates RESISTANCE - b/c that means that if there are
5MMs on the ASK, they all are thinking the price is TOO HIGH and are WILLING to sell shares
to investors at that level that they think they can buy back at a cheaper price (on the bid)....
Now remember - L2 is DYNAMIC, not STATIC - this changes CONSTANTLY with the volume
and the skew of trades coming in....
In the case of NITE and HRZG on the BID, they are the 2 biggest MMs and were likely aware of
the news - that is why they were trying to BUY shares, b/c they KNEW that MOnday, this will
go higher and they will NOT be able to get shares at the $3 level - they werre likely short and
knew that they will have to go even more short Monday, so they were trying to get people to
sell to cover their short - they gave the highest BID to try to entice sellers....
They now know what we know - that this sucker is going UP.
So they, like us, want shares at CHEAP as possible!!
Hope this helps....
POST #2
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When MMs get caught unaware - when big news hits for an OTC stock - they get flooded with
BUY orders. Now MMs make the most $ when the buy and sell orders are EQUAL and MANY -
so they get a piece of each one and do not go SHORT. MMs do go long, but not really that long
- they are short term traders. They will buy at what they think is cheap, sell for what they think
is a good gain, and then short again, drive the price down, cover, and go LONG again.....
So - when MMs get caught in a FLURRY of orders from investors to BUY stock, they fill some
and then to protect themselves, they RAISE THE ASK. Ever noticed that it is hard to fill in a
moving market?? That is b/c the MMs do NOT want to fill you until the BUYING STOPS - they
HAVE to fill some, b/c they HAVE to make a market. But they will fill as little as they can get
away with filling until they get a hold of the stock again - and that happens when the price rides
up fast and furious. Then, many buyers start to say "well, I'm not gonna chase THIS much - I'll
wait for the pullback and get it then". THe buying slows down. Of course, some people still buy
- and some, more foolish people, have placed MARKET orders in a fast moving OTC stock.
That is EASY MONEY for an MM, and when they see a string of market orders, their eyes light
up.
What they do is HOLD the Market order - sometimes for 10-15 minutes - all the while raising
the ASK with as little order filling at the ask as they can get away with - and raise to where they
think there will be some resistance. Then, they fill a TON of market orders at a certain price -
but they DO NOT move the ASK up. They try like hell to absorb the buying flurry - and if they
are successful, buying starts to taper. Then, they will close the spread to entice sellers - all the
while NOT raising the ASK. A few sells come thru, and then they try to trigger some more by
BUYING 100 share lots at the bid - WHICH LOOKS LIKE SELLING TO THE PUBLIC. THe
public and traders think the run is over, and they start to sell - of course, MMs then do the
reverse - they DROP the BID/ASK and try to fill as few orders on the BID as possible until they
can walk it down to COVER THEMSELVES!! Then all the orders to SELL at market go thru -
often at a SUPPORT LEVEL. Once the MMs get a few shares back and decrease their short
position (they may actually even try to go LONG since they know the stock is in a rally), they
move it back up, hoping to induce PANIC BUYING from all of those who BOUGHT at the TOP
and SOLD in a panic when the stock price dropped immediately after they bought...
MMs are sneaky BASTARDS. Know their games. Know what they are trying to do - that is,
make $ at YOUR EXPENSE. Making a market for them is secondary to making $ - always
remember that...
How can you beat them at their own game?? Simple - BUY stocks with EXCELLENT
management, a unique and scalable product, and buy them when others either are panicked
or are unaware of the potential. Then, hold them thru the frenzy. The ups, the downs, the
non-action - just hold - and reevaluate management's ability to execute their business plan at
certain key points - quarterly. Do not sell when the stock drops on no news if you believe in the
fundamentals and the ability of management to execute. IF you need to sell, sell into strength.
IF you do not need to sell - just hold LONG - by that I mean YEARS....
MMs think, and rightly so, that most people who buy OTC stocks are not LONG TERM
INVESTORS. They think they are here for a quick buck, and most are - that is why MMs are so
successful at manipulating the stock and scaring "investors". If one really goes LONG, that
throws the MMs off. If the float is whittled away by real long term investors, the MMs have less
leeway to play their games. Then they HAVE to make a more fair market, and they HATE that...
I have 40K of my shares in MY name - not in STREET name - so that MMs can NOT play with
them. I will be taking more shares out of the market soon.....
Smak |
