Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Premium Bonds Good, Bad or Ugly Investment? Here's What Return (Prize Wins) to Expect - 5th Dec 20
How to accomplish a technical analysis with the Forex - 5th Dec 20
What is life insurance and what are the benefits of having it? - 5th Dec 20
Pre-COVID US Economy Wasn’t All That Great Either - 4th Dec 20
Bitcoin Breath Taking Surge - Crypto Trading Event - 4th Dec 20
Platinum Begins A New Rally – Gold & Silver Will Follow - 4th Dec 20
Don't Let the Silver (and Gold) Bull Shake You Off! - 4th Dec 20
Stronger Risk Appetite Sends Gold below $1,800 - 4th Dec 20
A new “miracle compound” is set to take over the biotech market - 4th Dec 20
Eiro-group Review –The power of trading education - 4th Dec 20
Early Investors set to win big as FDA fast-tracks this ancient medicine - 3rd Dec 20
New PC System Switch On, Where's Windows 10 Licence Key? Overclockers UK OEM Review (5) - 3rd Dec 20
Poundland Budget Christmas Decorations Shopping 2020 to Beat the Corona Economic Depression - 3rd Dec 20
What is the right type of insurance for you, and how do you find it? - 3rd Dec 20
What Are the 3 Stocks That Will Benefit from Covid-19? - 3rd Dec 20
Gold & the USDX: Correlations - 2nd Dec 20
How An Ancient Medicine Is Taking On The $16 Trillion Pharmaceutical Industry - 2nd Dec 20
Amazon Black Friday vs Prime Day vs Cyber Monday, Which are Real or Fake Sales - 1st Dec 20
The No.1 Biotech Stock for 2021 - 1st Dec 20
Stocks Bears Last Chance Before Market Rally To SPX 4200 In 2021 - 1st Dec 20
Globalists Poised for a “Great Reset” – Any Role for Gold? - 1st Dec 20
How to Get FREE REAL Christmas Tree 2020! Easy DIY Money Saving - 1st Dec 20
The Truth About “6G” - 30th Nov 20
Ancient Aztec Secret Could Lead To A $6.9 Billion Biotech Breakthrough - 30th Nov 20
AMD Ryzen Zen 3 NO UK MSRP Stock - 5600x, 5800x, 5900x 5950x Selling at DOUBLE FAKE MSRP Prices - 29th Nov 20
Stock Market Short-term Decision Time - 29th Nov 20
Look at These 2 Big Warning Signs for the U.S. Economy - 29th Nov 20
Dow Stock Market Short-term and Long-term Trend Analysis - 28th Nov 20
How To Spot The End Of An Excess Market Trend Phase – Part II - 28th Nov 20
BLOCKCHAIN INVESTMENT PRIMER - 28th Nov 20
The Gold Stocks Correction is Maturing - 28th Nov 20
Biden and Yellen Pushed Gold Price Down to $1,800 - 28th Nov 20
Sheffield Christmas Lights 2020 - Peace Gardens vs 2019 and 2018 - 28th Nov 20

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

The "Blueprint" for Stock Market Manipulators

Companies / Market Manipulation Mar 18, 2013 - 08:15 AM GMT

By: Money_Morning

Companies

David Zeiler writes: While they may have perfected the trading strategies that use retail investors as patsies to enhance their profits, Wall Street titans like Goldman Sachs Group Inc. (NYSE: GS) and JPMorgan Chase & Co. (NYSE: JPM) didn't invent them - that honor goes to a man named Richard D. Wyckoff.

You may not have heard of Wyckoff because he died in 1934. But the book he published in 1931, "The Richard Wyckoff Method of Trading and Investing in Stocks - A Course of Instruction in Stock Market Science and Technique," became the blueprint for Wall Street's big investment banks shortly afterward, and remains so to this day.


A stock runner at age 15 (that was in 1888), Wyckoff opened his own brokerage when he was just 25. He studied the habits of the most successful traders of the day - Jay Gould, J.P. Morgan, Andrew Carnegie - with the goal of synthesizing what he learned into a comprehensive market strategy.

Wyckoff first set out his ideas in a popular 1920s newsletter, "The Magazine of Wall Street," eventually publishing them in book form.

Wall Street traders eagerly adopted Wyckoff's strategies, which emphasized technical analysis but also outlined how big players could exploit less sophisticated investors to earn huge profits.

It's been a popular Wall Street game for over 80 years.

"The truth is that Wall Street has stacked the deck against you," said Shah Gilani, Money Morning Capital Wave Strategist and editor of the Wall Street Insights and Indictments newsletter. "That's why you need to understand how the game is played. Otherwise, you'll end up a Wall Street patsy."

The Richard Wyckoff Trading Strategy
What's most striking about what Wyckoff wrote in 1931 (and said in his newsletter prior to that) is how closely it matches what we see happening on Wall Street today.

Once a big operator has identified a stock ripe for trading, Wyckoff said, it will gradually, quietly accumulate a position in it to avoid tipping off any other investors.

In this stage, the idea is to buy the shares as cheaply as possible with actions that drive the price down. So the big trader "raids the market for that stock, makes it look very weak, and gives it the appearance of heavy liquidation by sending in selling orders through a great number of brokers," Wyckoff wrote.

Mechanisms to keep the stock price from rising too high during this phase include strategically selling large blocks of shares while spreading negative news about the company in question.

This strategy also helps weed out most of those who want to sell the stock, help setting the stage for the big run-up to come.

Ideally, the big trader tries to accumulate the bulk of his position right before some major positive news breaks - news that the trader knows about or expects to happen.

"You have often noticed that a stock will sell at the highest price for many months on the very day when a stock dividend, or some very bullish news, appears in print," Wyckoff wrote. "This is not mere accident.

"The whole move is manufactured. Its purpose is to make money for inside interests - those who are operating in the stock in a large way. And this can only be done by fooling the public, or by inducing the public to fool themselves."

Just before the positive news breaks, the big trader buys even more shares, creating strong upward momentum that dupes less sophisticated investors into buying and driving the stock toward a target price.

After the news hits and the stock peaks, the big trader will sell part of the position into the frenzy of buying by retail investors who think they're getting a hot ticket.

For the weeks after, the big trader plays the earlier game in reverse, keeping the stock near its peak while unloading shares until they're gone.

And then the trader shorts the stock, slowly building his short position as he did his long position.

When it's time to cash in for the second round of profits, the big trader cancels any buy orders he had made to prop up the stock.

"The specialist in the stock then tells some of the moreimportant floor traders that the stock is in a weak technical position and that there is no support for the next 8 or 10 points and they all get together and raid it down ... at which point the operator covers his shorts," Wyckoff wrote.

Of course, at this point it's the investors who bought at or near the top - mostly of the retail variety -- who take a bath, while the big trader counts his profits.

It Just Happened Again
If you have any doubts this is going on every day on Wall Street, just look at what happened with Goldman Sachs and the recent sale of H.J. Heinz Company (NYSE: HNZ) to Warren Buffett's Berkshire Hathaway (NYSE: BRK.A, BRK.B) for nearly $28 billion.

Goldman had to be aware that the Berkshire deal was brewing, yet maintained a rare "Sell" rating on Heinz right up until the deal was announced Feb. 14.

In fact, Goldman went out of its way to reiterate its Sell rating in a Feb. 10 report, lowering its price target to $53 from $54 and saying it expected the stock to "underperform as top-line growth continues to disappoint."

As the Web site Zero Hedge pointed out at the time: "What does a Sell rating really accomplish? Well, in this case, and in all such cases, it merely provides the firm's prop, pardon flow, traders the opportunity to accumulate the shares its "clients' are advised by the same bank's sell-side group to Sell, preferably to the bank in question."

HNZ rocketed from just over $60 to $72.50 on the day the deal was announced.

Meanwhile, the Securities and Exchange Commission (SEC) is investigating a sudden spike in Heinz options trades that originated from a Goldman account in Switzerland one day before the deal was announced.

Whoever made the trades pocketed about $1.7 million.

The episode is a reminder to retail investors that they need to keep an eye on the Wall Street big boys to avoid becoming their trading fodder.

Gilani said investors need to abandon the buy-and-hold strategy pushed on them by Wall Street's "experts" and instead "think like a trader. Know what entry points are good places to buy. Know what points are good selling points. Trading means having a plan.

"The way to play the Wall Street game is to do what they do, not what they say you should do," Gilani said.

[Editor's Note: If you're fed up with the rampant corruption, double-dealing, and protection of Wall Street by Washington (at the expense of the taxpayers on America's Main Street), then you need to read Shah Gilani's Wall Street Insights & Indictments newsletter. As a retired hedge fund manager, Gilani is a former Wall Street insider who knows where all the bodies are buried. But unlike most insiders, he's not afraid to tell you where they are. He's also got some pretty good ideas how to fix this mess - and how to protect yourself until the cleanup takes place. Please click here to find out more. The newsletter is free.]

Source :http://moneymorning.com/2013/03/15/the-wyckoff-legacy-82-years-of-wall-street-profiting-at-your-expense/

Money Morning/The Money Map Report

©2013 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules