Teaching You to Trade Stocks 85: Some Miscellaneous History of Playing with Market Makers 3

2007/10/22 21:42:06

Everything below is sleep-talking. Don't believe any of it. Anyone who believes it has something wrong with their brain.

Let me share some old history, so everyone can learn a thing or two.

The techniques used for this kind of work, even by today's securities law standards, are completely without a single violation — this is absolutely a classic case study. It also shows how tops are engineered in the stock market.

The task at hand was to unload shares of a stock, and not at the current price — it had to be at a certain level. That wasn't too difficult. The key issue was that the holdings were only a bit over 30%, the stock had already risen N-fold, and there were quite a few small players' insider positions hidden inside, some as much as 10%. Since this game ultimately trapped a so-called "big shot" — someone still active in the market today — and more importantly, this stock has never returned to its high from that era even after all these years, to avoid giving that trapped middle-aged man ideas about banging his head against the wall, and even more to protect Beijing's cultural relics, this ID won't reveal the price levels or the stock name.

First, half of the chips were concentrated and transferred to a brokerage branch with at most a handful of gossips. Then I told them that within the next three weeks, N billion would be gradually transferred in. Very seriously, someone was sent to negotiate commission-sharing terms, demanding the highest possible rate, with special emphasis on even higher rates for wash trades. Note: the person who went to negotiate didn't know what the real plan was — they were only told work needed to be done there, and to find the lowest cost arrangement.

Then, the stock started showing unusual activity from N yuan. After it rose another 20%, selling began at other brokerage branches, but with a very peculiar technique — always selling at low prices. After selling, they put on a show of being painfully short-squeezed, and rumors about someone's shares being fight over quickly spread.

Next, the money from selling plus additional funds were transferred ahead to the first brokerage branch, and they were told even more money was coming.

Soon the stock price was up 40% from the starting point, and the selling continued at other locations, buying low and getting "completely squeezed out." This performance was so convincing that even the insider positions believed they'd lost countless shares and would try to push the price down to buy back. The insider positions also began significantly increasing their holdings. After that, there was no longer any need to sell on dips. Any sell orders placed would be swept up immediately. How outrageous!

At this point, negotiations began at the first brokerage branch about margin lending — proposing to use shares as collateral for a 1:2 leverage ratio. But they said the most they could do was 1:1.5, since the stock had risen too much recently. So someone was sent to angrily tell them that a broker offering 1:3 leverage had been found, and half the shares were immediately transferred to another branch. The first brokerage then began panicking and trying to retain us. In reality, selling was nearly complete at the other locations, and the shares were needed back.

On the last day, the stock had risen over 70% in just over three weeks. That morning, the moment the market opened and buy orders surged, the final slaughter began — all remaining shares flooded out at once. I won't detail the exact process, but the stock hit limit-down that day, and of course, the volume was astronomically huge.

Finally, someone was sent to tell the first brokerage branch: "We don't want to play anymore. Your feng shui is bad here — you can't keep client information confidential. News leaked and we got dumped on, trapped, lost a fortune. The funds here need to go fight fires elsewhere." And we left.

I'll only say this about the stock's ultimate fate: it declined over 90% from the peak. As for how much it fell compared to the original N yuan — that's probably not a difficult problem to solve.

Note, the reason this game was classic is that throughout the entire topping process, not a single buy was made to push the price up. It was all batch selling, the most normal technique possible — no one could claim there was any irregularity. Moreover, not a single word was said that could influence the stock price. So why did it succeed? Simply because of people's greed, anger, delusion, doubt, and arrogance.

The most exquisite part is that the stock never recovered afterward. The multi-directional killing continued — since that last day, we never bought or sold that stock again, yet it kept declining. Even at the historic high of 2245 points in 2001, it still never came close to its old high. Some fools always say, "the market maker is suppressing the price" — typical waterlogged brain thinking. Why can't retail investors, small market makers, and insider positions killing each other through panic selling kill everyone without any fight left?

Of course, topping techniques come in thousands of varieties. This ID has played countless tricks — sometimes one top is just one top, sometimes what looks like a top isn't actually one. Endlessly variable. Warfare is the way of deception — isn't the stock market exactly the same?

Market-wide tops are different from individual stock tops — much more complex, because there are more component forces concentrated within, so their resultant force is naturally more complex. Generally speaking, market-wide tops never form simple chart patterns; they are extremely complicated. And even when they truly form, right before the final breakdown there's actually much hesitation — the larger the top formation, the more this is the case.

Market-wide tops are wrestled into existence through back-and-forth struggle, so actually at market tops, opportunities abound. Why? Because many who refuse to accept it keep churning — rotating through sectors and individual stocks, jumping here and there. Those who think the market dies instantly once a top forms have too much water in their brains.

Individual stock tops are mostly not complex, unless it's a large-cap stock with many participants — the reason is the same as with the broad market, just reversed: fewer component forces, too obvious a contrast, so complexity simply can't develop.

Of course, tops have levels. After a medium-term top and medium-term correction, it's no longer a top. So after a top, it's not necessarily the end of the world. But whether it's the end of the world after a top is determined by the subsequent development of the trend. If you try to hold through every top for the long term, your ultimate fate will mostly be getting ground down by the stock's ups and downs. The real solution is to use this ID's theory to clearly distinguish levels and operate according to buy and sell points.

One must note: regardless of what tricks are employed, the ultimate result of the combined forces is still buy and sell points. Buy and sell points are the invariant — any market maker, large fund, including this ID itself, cannot escape them. So for retail investors, you don't actually need to know the stories behind the scenes. Just read the trend correctly, and everything is within your grasp.

Replies

缠中说禅 2007/10/23 10:48:53
Someone's panicking? Fun, let me join in too

You think you're the only one who can play

缠中说禅 2007/10/23 15:17:01
The bears are badass — they stubbornly refuse to let the bulls fill the gap, hahahaha!
Post-close article coming shortly