From another thread:
,,,,,,,,,,,,,,,Strategies Revealed
The savvy long-term investors never chase stocks up. For the most part that is left to
momentum players and daytraders where most of what follows is dumb money. Instead
long-term investors use a couple of simple
strategies in order to position themselves. One is to find a stock no one immediately sees
has huge potential and accumulate.
Long-term investors are not interested in trading against the public mind or the dumb
money. That's where the majority of the money can be made. Even more can be made if
the base of a stock is held extremely strong by investors. To do this investors base their
decision on the research which is the underlying basis for going long and holding.
More and more investors are winning the game, nowadays, despite all bashers that float
through the Internet game. Floor traders of market makers often watch CNBC, news wires
and bulletin boards to follow the market during trading session. OTC BB market makers
(MMs) don't use fundamental and technical analysis. However, what they do realize is a lot
of dumb money does use this newest nitch charting or TA (Technical Analysis) to run a
stock either up or down. To the MMs this is like taking candy from a baby.
Simply they will paint the tape and use whatever tactic to affect the charting bands. Thus
the public and dumb money they will have eating out of their hands. Effectively the MMs
can show a strong stock growing weak by manipulating the closing price in order to
generate selling volume, delaying trading time to manipulate trading
activities, or even stalling the ask without honoring orders to hold a stock price.
MMs follow a simple code of business when making a market in a stock, especially an
OTC BB. That is the level that stocks will seek that yields the most volume. This is very
important because they make money on volume buying at the bid and selling at the ask. In
other words, by making the market they are buying low and selling high. Smart money
adheres to that rule as do all the market makers. They don't care whether the stock is at
$83 or at $0.23. All they care about is the action that allows them to sell stock at the offer
(The high) and buy stock at the bid (The low).
To increase their profitability, they make the spread as great as possible on as many
shares as they can especially if the volume falls off. When they have mostly "buy" orders,
that's not the price that's going to yield the most volume. They need both buy and sells to
get the maximum action. Remember, MMs play the volume. If the volume decreases and
there are mostly Buys that become a one way volume, Buy volume. So what they do
is let the stock run up to a price where it runs out of steam. Then they fill all the buy orders
that they can and then comes the pullback, one way or another, either natural or induced.
During the pull back they can buy tons of shares and flip them to those averaging down or
trying to catch the bounce. At some price, the stock will be relatively stable and yield the
most volume. Now that is the average price you will see. The average price is the point
where a stock seeks a level where MMs can profit on the most volume. So during the day
that is the price that MMs and momentum/day traders want to see the stock at. Why?
Because they know the public and dumb money was chasing the price thing up.
Most of the time, the MMs love a flurry of Market Orders which is a dead sign of an
artificial run or momentum. Merely it is money in the bank for them. Most get hung in a
momentum or day trade or by the tactics of Market makers, who are in the business to
screw the public every chance they get and the NASD is not going to do anything about it.
They are merely making the market liquid is there reasoning.
The market makers have created an added complication to the OTCBB's chaos of
already volatile intra-day price movements created by dumb money, momentum and
day-traders. MMs can not relate to long-term holders in the OTC BB. That makes
absolutely no sense what so ever. They feel a large percentage of trades in the OTC BB
market consist of short-term or day-trades, MMs merely view the barrage of buy and sell
orders as relatively neutral to the market. How they figure it is when the average dumb
money buys shares in a company, the MMs feel or rather know, with some certainty, it is
very likely that dumb money will want to sell back those shares relatively quick on the
slightest drop.
Now somewhat comfortable with this logic the MMs merely short sells into the buying and
attempts to take the stock down in an effort to "shake out" the weak. Since it is tough to
know for sure whether a move is the beginning of a trend, or a routine shake out, this type
of deception works quite well for the MMs.
What the long-termers do to a stock is surprise the MMs because instead of falling the
shorting has no effect and the price goes up. Now that puts the MM at selling low through
shorting and thus having to buy high in order to cover.
Boy, when this happens, the MMs are not very happy campers. The investors and traders
are supposed to be doing that to them. Now it becomes time to pull out every trick and
tactic in the book in order to attempt to get a Bear Raid at every dollar mark or percent
from where the stock started. Could be a penny in smaller priced securities? What MMs
do is give you a chance to make a small amount of money for your momentum and day
trading style by shorting it at these levels and trying to get a bear raid each time. Each
failure is compounding the MMs short position so they let it go to the next level.
Now comes more deliberate tactics MMs use to coerce Bear Raid or panic selling. Once
the MM is caught short and the strength of the buy is overpowering, the MM will want to
cover his short position. So the MM calls up a friendly MMs and says something like "the
weather is sure rough today." The MM along with the other "friendly" MM initiates a down
tick at about the same time often with a small amount of shares such as the infamous 100
shares flag.
This down tick gives the illusion of weakness designed to hopefully begin the bear raid of
selling. The fickle, fearful, day trader, momentum and short term begin to sell out allowing
the MM to cover his short position at lower prices. They will move it down quickly to get it
to a price of least financial damage.
The problem they have is long-term investors in the OTC BB. They start accumulating and
buying comes flying in when they take it too far thus the MMs took it to the point of volume
again and not only investors the other MMs step in the make money on the spread.
Alas the poor MM does not get to cover!!!!
Now comes various tactics like stalling, boxing, or even locking the Bid and Ask for a
while. Of course, MMs aggressively deny any sort of collusion designed to fix quotes or
spreads, but a recent SEC investigation tells another story which they released on
January 11, 1999.
sec.gov
MMs have a vast resource of tactics and it would take probably more than my lifetime to
figure them all out. So how do investors somehow manage to overcome the obvious
deception in OTCBB arena? One answer is indirection trading style by going long which
the MMs do not expect. In the war between investors and public companies on the OTC
BB vs the MMs, if the MMs have all the advantages due to position or other factors, direct
confrontation such as momentum or day trading hitting the stock is a definite death
sentence.
However, an indirect approach tends to weaken the path of least resistance before slowly
overcoming it. The most effective way is long-term investors slowly accumulating and
holding thus drawing the MMs out of its defenses making them as naked as their short
position. This is war so this slow accumulation and holding for the long term easily
achieves the desired effect to force MMs to cover and knock off the tactics or bury
themselves deeper.
The MMs when caught will especially use every trick and tactic in the book to get a Bear
Raid thus playing on the individual fear of most people. The MMs feel they have
information and position advantages over the investors as long as the holding of the stock
is in weak hands or short term holders. Since they are OTC BB MMs believe OTCBB
companies are not worth investing in and management is ineffective regardless what is
happening within the company. Furthermore, MMs know they are in the position to mpose
a great deal of influence in OTC BB stocks trading when it suits their needs.
This inherent power of position enables the MMs to move the markets at any time up or
down. As a result, the only way to draw them out of their favorable position is going long.
Now this does not mean going long on just any company but to effectively nail the MMs,
Longs must find the great company on the floor and accumulate long before the MM
tactics and games begin.
This requires extensive research to find such a rare stock, but once you have found it, you
are one up on the MMs so be prepared for every tactic in the book. |
