We have all heard that the markets are largely manipulated by the big banks and institutions, but to what degree is seldom discussed…and there is certainly the question “why”? Which is simple, they know both how the system works, and more importantly how the retail investor’s think and act.

So with the use of “smoke and mirrors”, these big players are able to create false realities within the market, which is a HUGE advantage for them. These false perceptions cause the retail trader’s (little guys like you and me) to believe things about the market that are ultimately not true.

Understanding why they do this is key, and the answer is liquidity. Remember, this is a zero-sum-game; there is always a winner on the other-side of a losing trade.

That to say, the big players in this market are willing to spend millions of dollars driving the price of an asset up or down to create this false reality. This will ultimately infuse the said asset with liquidity as the retail trader’s jump into this trap. Once these funds have manipulated price into an area of deep liquidity on the charts, they will sell a part of or reverse their position leaving the retail guys holding the bag.

Jim Cramer, former hedgefund owner and host of “Mad Money”, was interviewed on this subject a few years ago and further explains what I am talking about. This information certainly reveals the flaws behing trading fundamentals.

Notice at the beginning of the video that Cramer says that he wouldn’t say this stuff on tv…

So as a retail trader, the immediate question you should be asking is how you can avoid these institutional traps in the market.

We first have to understand where institutions are buying and selling on the chart. Remember that they are the wales in the market, so it’s not impossible to spot what they are doing as long as you know what to look for. These area’s of liquidity are referred to as orderflow, and we can pre-determine whether that flow is going to be bullish or bearish in nature.

Then the next question we have to ask ourselves is whether or not a particular move in price is or is not supportive of orderflow. If the move isn’t supported by orderflow then we can assume that there is manipulation at hand.

Finally, we have to keep other retail traders in mind. Remember that the retail traders are the ones that are typically buying or selling at the end of a big price move, which ultimately means that they are on the losing side of the trade. With this in mind understanding when they are buying or selling is a BIG part of the picture.

What’s your edge in today’s market? If you are trading/investing without an edge then you are swimming with the sharks, and we all know how that ends… 

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