The market is filled with computer “geeks” and math “nerds” who developed sophisticated algorithms to attack the market… treating it like their personal ATM machine.
They’ve come up with unethical strategies to make money, at the expensive of the everyday trader.
Take Navinder Singh Sarao who was using automated trading systems to manipulate the market… and raked in $40M over the span of 4 years. Sarao used an illegal technique known as “spoofing” to throw in fake orders, only to cancel them and buy at a lower price.
One day, Sarao flew too close to the sun…
He had an itch he just had to scratch… he turned on his automated program and let large sell orders fly to push down the prices down, and then he’d buy back for super cheap…
I’m talking discounts of over 8%…
Just look at that massive drop in the S&P 500… heck, even the blue chips didn’t survive…
They finally popped the guy who caused a $1T wipeout in the market for about 15 minutes, five years after the Flash Crash of 2010.
The thing is there are complex algorithms out there that still use this illegal technique because technology has evolved so much since then.
So how exactly does this all work… and how can you trade stocks without worrying about the algorithms?
Computer algorithms can be a thing of beauty… I mean who wouldn’t want to automate how they trade and just sit back… watching the money pile up while you go about your day.
These banks are known to build complex systems to rake in an obscene amount of money. Since algorithmic trading is such a lucrative game, it’s become a full-on arms race amongst banks, always trying to get a one up on each other…
However, these guys got crafty with it and figured out “loopholes” that allow them to manipulate the market.
Don’t Get Faked Out By The Spoofers
There are algorithms out there that place “fake” sell orders and artificially push prices down… only to buy them for a discount. All these guys have to do is turn on their machines and that’s it.
The way it works is similar to a poker game.
These “spoofers” will throw out big sell orders… and that attracts other traders because once they see someone getting out…
They think, If someone big is selling, I should sell too.
So they leave the massive sell orders sitting there… and the price drops. However, the large order is just a spoof. These guys ultimately cancel their offers…
And subsequently, traders will look to buy back because it’s “cheap”.
That’s exactly what Sarao did… he traded more than 60,000 E-mini S&P 500 futures contracts with a notional value of a whopping $3.5B. He kept throwing out phantom order that never got executed, nor did he have the intention to sell.
He drove prices down so well, that he caused the flash crash on May 6, 2010… nearly $1T of market value was erased in just minutes… but that ultimately led to his demise.
That doesn’t mean traders aren’t still using similar strategies now.
So many banks innovated that strategy… and now there are hundreds of algorithms out there placing really shady trades all the time. The worst part about all this is the fact they take money out of the everyday trader’s pockets.
But I’ve come up with a solution for all this. Rather than trying to compete with them, I actually developed a simple strategy that allows me to place one trade a week and set myself up for massive profits.
All you have to do is watch this short clip, and you’ll see exactly how you can simplify your trading… and consistently find winners in the market.