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Ira wrote:
> It is no secret where the stops are. YOu can look at any chart
> and see. They also get the breakout traders. they take the market
> to a new high and then slam it. You can do anything you want on or
> off of the floor if you know how.
That's all fairly common knowledge, but I want to ask a really basic
and probably naive question:
**HOW** do the floor traders "take the market" anywhere?
It seems to me, from a simplistic point of view, that at any moment
there is a "fair price" for any commodity. That's the agreed-upon
price arrived at by buyers and sellers in the market at that moment.
How does the floor trader disrupt that balance and move the price
away from its "real" fair price, then "slam it" back again?
I assume that the stop-runner moves the price by e.g. bidding well
above the current price with a small number of contracts. Then, once
the market moves up to his bid and gets to the area where all the buy
stops are sitting, he sells aggressively into those stops. The
selling pressure (and the sudden lack of artificially-high bids) then
moves the market back to its "real" price. Any losses that the
runner suffers on his bids are more than made up by the profits on
his larger sells.
Is that about right?
What's always confused me about this scenario is WHY the market would
follow the stop-runner's bids like obedient sheep. Is the market
really so easy to manipulate (at least during the thin periods that I
assume are the prime stop-running times) that a few contracts bid
above the current price will move the whole shebang? Wouldn't the
runner have to keep bidding and bidding and bidding above the market,
or else the previous supply/demand forces would come into play and
snap the market back to its former equilibrium? (Or are the runner's
few contracts enough to *change* that equilibrium??) How does the
runner keep the market moving to his desired target -- do the rest of
the floor traders smell blood too, and help him move it?
Lastly, Ira, you say you can do it on or off the floor. I'm having a
little trouble imagining how a single small (or even fairly large)
off-floor trader could initiate a market move like that, unless he's
able to spark the same blood-lust on the floor that the on-floor
runner was relying on. Is that really do-able, or just theoretically
possible? Or are you saying that the smart off-floor trader will
WATCH for one of these stop-running moves, and sell when the price
reaches the obvious stop-resting point, just like the runner did?
Thanks,
Gary
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