Posted On: 04/01/2014 3:21:03 PM
Post# of 56324
part 2.................
Tricks and Deception
Although watching the level II can tell you a lot about what is happening, there is also a lot of deception. Here are a few of the most common tricks played by market makers:
Tricks and Deception
Although watching the level II can tell you a lot about what is happening, there is also a lot of deception. Here are a few of the most common tricks played by market makers:
- Market makers can hide their order sizes by placing small orders and updating them whenever they get a fill . They do this in order to unload or pick up a large order without tipping off other traders and scaring them away. After all, nobody is going to attempt to push through a 500,000 share resistance, but if a persistent 10,000 share resistance is there, traders may still think it is a beatable barrier.
- Market makers also occasionally try to deceive other traders using their order sizes and timing. For example, JPHQ may place a large offer to get short sellers on board, only to pull the order and place a large bid. This will force the new shorts to cover as day traders react to the large bid.
- Market makers can also hide their actions by trading through ECNs. Remember, ECNs can be used by anyone, so it is often difficult to tell whether large ECN orders are retail or institutional.
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