Rebel Traders 039 : The Wizard of Trading…

It’s time to pull back the curtains and see who’s pulling the levers as the Rebel Traders look at what is moving, manipulating and turning the handles that drive the markets...

You often hear traders and non-traders say that the markets are rigged, that they are all manipulated and Wall St is one big casino out to rob the unwary. So, in this week’s show, Sean and Phil dive in to the trenches, yank back the green curtain and see what really is going on.

They’re going to talk about what really drives the markets, how they are or can be manipulated and how, as a Retail Trader, you can avoid the pitfalls and even profit from these scenarios.

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Sean Donahoe: It's time to pull back the curtains and reveal the wizards or trading. Ready to rock, let’s do it.
Automated: Rebel traders takes you inside the world underground master traders who take an entertaining and contrarian look at the markets to cut through the noise of Wall Street and help navigate the minefield. Together, Sean Donahoe and Phil Newton, are on a mission to give you the unfair advantage of a rebel trader. And now here are your hosts, Sean Donahoe and Mr. Phil Newton.
Sean Donahoe: Hey, this is Sean Donahoe. Hope you're all doing great. We are here with another Rebel Trader's podcast. This week, I'm joined by Mr. Andrew Page for the main show as Mr. Phil Newton is unfortunately feeling a little bit ill this week. We wish him a very speedy recovery and hope that he will be back in the saddle next week, but Mr. Andrew Page. How you doing sir?
Andrew Page: I'm great. How about yourself?
Sean Donahoe: I'm doing absolutely fantastic and I appreciate you stepping in here this week. We're going to have a doozy of a show and actually kind of appropriate for some of the things we're going to be talking about here today. I have Andrew here because he is very much aware of some of the things that we're going to be talking about. We’re literally going to be peeling back the curtains, as I said, to see who's pulling the levers, who's manipulating the markets, what’s schemes they use so you can be aware of them.
Maybe avoid a few of these traps and even position yourself to take advantage when you see the signs. Although, I'm not talking about looking at the bottom of a tea cup and look for the tea leaves or reading palms here. We're looking at the charts and everything else, the technicals so that you can see when something weird is going on and maybe take advantage of it.
With that also being said, we have a quick-fire round, your trading questions answer. The bullshit of the week, which is always my and Phil’s and Andrew's favorite part. It's where we look at the hyper hyper-ball, the shenanigans, and all the other than the weird stuff going on in either the news, the markets or what have you, that we just have to call out and go, “Yeey, that stinks.”
As always, we ask the cool question, where is the actual trade? Let's get started, let’s peel back the curtains, a little bit of wizard of Oz going down the yellow big road. I hope that doesn't make me Dorothy and Andrew Toto. But we're going to be looking at ... we're going to highlight a few of the schemes that manipulate the markets because we always hear, "Hey, the markets are rigged. It's a giant casino, those banksters, those Wall Street Yahoos. It's all rigged. It's all BS."
We make money in the markets every damn day it isn't rigged, but there are times when it's manipulated. There are times where things go a little bit naughtier. That's why we do have the regulators. We have the SCC. The FTC, and every other three letter organization with mentoring clipboards, with windbreakers who are very much in trying to make sure that this kind of shenanigans are not happening.
I want to talk over a few of the schemes that are out there so that you're aware that you can avoid, as I said, the pitfalls. You don't want a full headfirst, you'll end up losing your bankroll and try and position yourself. If you see this happening, you can either step out the way and let everyone else get hit by the bus. Or you can take advantage of the situation you may see unfolding in front of you.
Now, with that being said, let's start with the classic, the one that everyone's probably heard of, especially for the crypto traders and the penny stock traders out there. It's the classic pump and dump. Now, this is the one I think everyone knows. It's actually pretty easy to do. This is where promoters have either a large position in advance and then promote the heck out of a stock or more recently we've seen this with cryptocurrencies.
We still see it going on, especially with the thousands of cryptos out there that. Well, I put the term loosely, but we see them pumping and promoting these stocks. They’re the next big thing, and they actually all have syndicates. This is one of the big things in the cryptocurrency world and in the penny stock world, but more so right now, the crypto world is there're syndicates. They’re all paid subscribers.
They communicate on social media or private apps and their kind of chat apps where the notice goes out, “Hey, this one's being pumped.” Then everyone jumps in, they ride the stock up and then everyone dumps at the same time. What happens is when you see that rise up, everyone's kind of attracted and “Oh, this one's going up. Quick, get in, get in, get in." Then everyone's investing and trading goes up and then boom. At the high, they dump it.
Everyone signals to dump and boom, you've made your profits, the stock tanks and everyone else is left holding the bag because they're thinking, "Oh, it's still going to go up. It’s still going to go up." Now, we've seen this across the board. We’ve seen in the main markets occasionally, but it's a lot more scrutinized than say crypto and everything else, which is why it's rife in the crypto market right now. But Andrew, I mean, you're familiar with this one?
Andrew Page: Yes, definitely. I mean there are a lot of these schemes out here, especially as you say, targeted at penny stock players and cryptocurrencies. They prey on people wanting to get rich quick. However, these pump and dump schemes don't just affect a dim witted an unsophisticated investor. A lot of IPOs are actually pump and dump schemes, but with a legal code around them.
Sean Donahoe: I love that. That is actually ... that was something I was going to allude to, but you went there, you just took the arrow, you pulled it back and you shot it right in the target. Yes, you're absolutely right. IPOs are pump and dump. They are highly hyped in the media, promoted with the institutional investors already getting the preferential price before it goes out to the public.
Andrew Page: Yes, and let's just talk about an IPO because I'm not sure if everyone is aware of the mechanics behind it. Basically, a private company wants to go public so they ask an investment bank to help them. Basically, the investment bank will come in and value the company and then they will give the company a large chunk of cash for the stock. The company they've got their money, they're good and it's now the investment banks job to sell that stock for a profit.
May be they'll get the shares and they pay $25 a share and they're going to try and at least make 10% on that. You'll see them going around and doing what's called the road show. They go across the country, they go to large investors, they get people hyped on it, they get media attention involved, they talk of the product and boom, IPO day comes and you see that 30% spike. Then a month later, what's going on? The stock price is now down 15%, classic pump and dump.
Most of either these companies don't have value. That's the big difference with the IPOs and a lot of this other BS you see with the penny stocks. The companies do have a real value. It's just been inflated by the investment banks. Even if you did buy in over the long haul, you'll probably still make money, but you did fall into that classic pump and dump mentality, where they completely preyed on that phrase that you hear all the time now, FOMO, fear of missing out.
Sean Donahoe: Yes, very much. Now, this also, this is a golden rule of investing or as trading as we say for IPOs. Wait a year because you've got the history, you've got the data, you've got all the bullshit settled down and again, all of that hype and shenanigans are out of the way. Now, you actually see what the company is actually doing on a day to day basis.
So, that's my golden rule always with IPOs is wait a year. I mean, if you look at Snapchat as a prime example, that was classic. Exactly what Andrew was just saying. But you never know, sometimes they take off, sometimes they don't. It's a gamble and I don't like speculating. I like trading and I like trading for profit. I don't want to do that. I don't want to hit that first day and then try and get filled because of the massive liquidity, massive hype.
It's costing too much to get in on that deal, if you can get filled at all on that hype on the first day, if there is or if it just doesn't tank. I much prefer waiting a year and seeing what's going on. But a brilliant example of a legal pump-dump and like I said, I was going to scratch around that one, but hey, you nailed it right between the eyes and I love that. That's great.
Now, the next one, painting the tape or running. Now, this is not front running, which we'll talk about in a moment. We've got a great story there, but this is when a group of traders create activity or rumors in order to drive the price up. Now, there's another variant on this where you start placing orders but cancel them, but it starts creating that kind of initial interest and activities is reported on the exchanges.
But this can attract other traders and investors based on that activity to run the price up higher. Now, we see this a lot and I mean, Andrew, what's your comments on this?
Andrew Page: It's almost like a catchphrase now. Buy the rumor, sell the news. It's almost like a self-fulfilling prophecy. When people are able to take advantage of it using schemes like this and they’re pretty successful a lot of the times.
Sean Donahoe: Yes. Over here it's more called painting the tape and other parts of the world it’s called running. We saw this recently where, I can't remember where it was, but there was a lot of painting the tape in a particular stock and again, it wasn't picked up by the SCC. But I'm trying to remember, which God damn stock it was, maybe it’ll come to me in a few moments.
But again, it's just literally may see ... if you see a lot of buy orders and it can trigger algorithms, high-frequency traders, if they see a lot of buy orders all of a sudden for a particular equity. What that can trigger it's like, "Oh no, okay. We see the activity boom. Jump in, jump in, jump in."
Again, that can trigger into a significant movement but then if those orders are canceled again, what was the algorithm going to do if it's filled and again that is ... this is one thing that I'm ... as we move more and more into algorithmic trading and high-frequency trading and everything else, that’s all algo based, machine learning based is, as you learn what those algorithms are triggered by, you can then manipulate them to certain situations.
I mean we saw that with the major correction we had recently was something with the rate of descent. You can be guaranteed that even that that event was triggering a lot of algorithms to sell, to get out of their positions and everything else that they had. It wouldn't be difficult or difficult to assume that you could start triggering and learning what levels need to be done.
But again, sometimes you need a lot of money for that as well, but if you're just big buy orders, they're not getting filled and you cancel them, that doesn't cost you a dime.
Andrew Page: Yes, that’s definitely.
Sean Donahoe: But if you do it too many times, I'm sure that the men in windbreakers and click boards will be having a look. Okay, next one though, we want to talk about is front running. I'm going to let Andrew explain this one.
Andrew Page: All right, so this is basically, it's like insider trading where you know something and you're just bidding the market. You're first, you're front running, you're out ahead of the race, you're in front of everybody else. So you're beating everybody to the punch essentially with the trade. Now, this is difficult to do because the SCC is really good at spotting this stuff.
I can't remember where I read this one article, but it was just so fascinating and hilarious. There was an FMOC announcement and I believe this was three or four years ago, and this company in Chicago, this trading firm had got a copy of the FOMC minutes a little earlier than everybody else. They were able to analyze it and formulate their plan, however, they made the mistake of placing the trades just a little too early and by a little too early.
I mean like a couple nanoseconds earlier than it would be physically possible for the data to move from Washington DC to Chicago and that's how they got caught.
Sean Donahoe: That is amazing. Nanoseconds, this is the one point I want to make here. By the time the SCC analyze and say, “Well you couldn't have ... no, it’s possible that you could've done that.” And just the fact that it was nanoseconds before that it actually tripped the radar and everything else and they got caught doing that. That is amazing and yes, that is the epitaph of front running though.
Andrew Page: Yes, I would say the other big definition of front running, it's pretty much in the same vein, but it's basically where your brokers are trading against you as a client and they have some kind of inside information that you don't. Again, basically the same thing, but where the brokers actively trying to screw you.
Sean Donahoe: We know plenty of brokers who, let's just say are not that scrupulous.
Andrew Page: Yes, definitely.
Sean Donahoe: Yes, I mean, this reminds me of trading places now, we were talking about this just before we started recording. It’s like if you watched ... me and Phil love that movie. We talk about that movie all the time and they got the orange futures report way before everyone else.
Andrew made a very, very funny comment and I'm going to let him take this, about the two heroes. Go ahead and say what you were saying because I thought this was bloody brilliant.
Andrew Page: I mean, I don't know why I didn't think of this before, but this came to me and just like a couple weeks ago and I was thinking about but I was like these guys are breaking the law.
Sean Donahoe: Seriously.
Andrew Page: These guys have stolen an agriculture report, put out a fake one to their former bosses and basically cost the market millions and millions of dollars for personal gains.
Sean Donahoe: Yes. It's basically a big con and highly, highly illegal at the very thing that we talk against the law all the time but we love that bloody movie. It was like, “Yes, okay that's a good point.” And one I hadn't really considered, we do it for comedy and is purely fiction obviously, but bloody funny movie, but yes, they are criminals at the highest level of market manipulators.
But there you go so anyway, next one I'm going to talk about churning. This is when traders or a trader places both a buy and sell orders at the same price. This just creates an increase in activity and is intended to attract additional investors and increase the price. Now this I’ve seen occasionally, I don't see this one as much anymore but Andrew, what do you think about this one?
Andrew Page: Yes, I think you see a lot of it, again, in the less regulated markets, at the penny stocks, cryptocurrencies, it’s again-
Sean Donahoe: It's spiking volume of something going on so it just triggers people to think up.
Andrew Page: Yes, it pops up on the radar and that's the point of it. Get people interested in looking at it, trading it, hence generally hope that the realistic goal of driving the price at one direction or another for the perpetrators to make some money. Definitely a lot harder to do in the stock market. There you just need quite a bit of volume and you need some serious computing power and programming skills to pull that off these days.
Sean Donahoe: And a lot of capital, a lot of capital. But yes, that one's harder to do and again that certainly get you a lot more scrutiny with that going on. Now, the next one is one of the most common ones we see. In fact, you've probably seen this one and didn't even know it, stock bashing. Now, this is where you see the news, the rumor mill, the message boards with bad or falls or even misleading news to push down the price.
This is usually done by either short sellers in concert with dodgy, let's just say dodgy people or investor relations firm. This is one that has also happened with investor relation firms who have convertible notes that convert for more shares with the lower the bid ask actually is. Basically, the lower the price is driven, the more stocks can convert and then pick up stock at a lower price.
Then they reverse the rumor mail or remove and retract those posts that this stock price goes up and they make profits. Now, I saw this one recently, is a prime example and it's not ... well unless you're doing ... unless you quote. Obviously, it's illegal if you're saying misleading or completely false information and what have you.
There are laws against this in many countries, but if you have a shot position, and I saw this with Shopify, funnily enough recently. I can't remember the names of the gentlemen, but he’s a very famous short seller and he came out and he was really publicly in videos on the news and he was talking about Shopify and they don't have as many stores as they claim.
Most of those stores are actually dead and everything else and it really hit their stock prices, but he had a ... he was a short settler on that, but he also came out to justify his ‘short position’, put that in quotes, but it was all over the media. Everyone was picking up on it, certainly in social media and what have you.
Again, that just started a viral awareness of that, but it tightened the stock so he made money. But we see this a lot in other areas where people are taking short positions on certain stock and then you see just a sudden swath of bad news you can actually look at that. It’s hard to then separate what is genuine bad news versus promoted bad news, but it does create that perception. It does create that negative impression.
I mean look at Snapchat as a prime example. We mentioned them earlier on with the IPO. There were swathes and swathes of bad news coming out right after the IPO kind of fueled somewhat by a lot of investors who were avoiding it and we also had, what was the other one, Blue Apron.
Because of what happened with snap, they cut their initial public offering down to $10 from 20 and then when they came out there was all the things about Amazon could be starting their own food service and it could crush Blue Apron right at the time of them doing IPO but it's hard to know is what was rumor mail, was just actual speculation because of unicorn IPOs and what was going on. I mean what’s thoughts on that.
Andrew Page: Yes, I mean if you at a glance are able to tell the difference between fake bad news and real bad news, you're going to make a lot of money in this lifetime trading the markets. That is definitely a skill that you possess. I don't know if anyone actually possesses it but that would be pretty incredible.
Even sometimes, I mean, I don't know if this really falls into stock bashing, but I don't know if you heard about a Snapchat just to last week or two with a celebrity coming out. I can't remember her name.
Sean Donahoe: Kendall Jenner.
Andrew Page: Kendall Jenner. Okay, yes.
Sean Donahoe: Yes, she, she said, “Oh, does anyone use Snapchat anymore? I haven't opened that app for months.” And then in tang the stock 10%.
Andrew Page: Right, that would have been really funny if she was in on some scheme. I'm not saying she was.
Sean Donahoe: Allegedly, we're not alleging anything here. We’re not alleging.
Andrew Page: Yes, but that was really funny. That was really well played.
Sean Donahoe: Here's the thing, how vulnerable is your company when a tweet or I don't know if it was a tweet or on Instagram, but when a tweet by let's just say her only talent is surface based, but one tweet from that following and that influencer crashes your stock 10%. That shows how vulnerable your company truly is.
Andrew Page: Yes, definitely, and I agree with that. I just thought it was really funny that I tweet from someone who's not the president or the president of-
Sean Donahoe: I was going to say, we're not going to bring the president in this one, but yes, go ahead.
Andrew Page: And they hit the stock pull 10%. That was pretty ... that was hilarious.
Sean Donahoe: Yes, that was not good. And just for the record and as you could probably guess, ladies and gentleman, I'm not an investor or a speculator in Snapchat, although I did have a short position a little while ago just because that was obvious. Yes, that Snapchat is not a company I expect to go very far. Okay, so with that being said, let’s have the look at slingshotting.
This is where an institutional investor through its purchasing power has the ability to drive prices down but then buy back into the stock just because they've got the ability to shot, shot, shot, and then they change their mind. Once they’ve driven it down enough, they buy back into the stock at the low price and then ride the stock back up.
During the rally or reversion to me, I mean we saw this with in a lot of ways with Barclays back in 2014 with their Gold price fixing. I mean, I don't know if you remember that one. Have you seen that case study?
Andrew Page: I do.
Sean Donahoe: What's your comments on that then?
Andrew Page: Actually, at the time I was a commodities broker and I remember Goldman Sachs coming out and saying Gold's going to 1200. I’m like, well Gold’s going to 1200, we should shot it, so I shotted one for my client and he definitely made it a decent amount of money on that and I was wondering like Gold was just ... why is it dropping so fast and so hard and later we found out scheme.
Sean Donahoe: Yes, naughty, naughty, naughty. A lot of hands were slapped with that and they promised with pinky swears, they would never do that again, but there is a lot of price fixing. We know that it exists.
Andrew Page: You could kind of consider OPECS kind of scheme to a push down oil prices over the past couple of years as a slingshotting kind of scheme. Although, I would say that, that would backfired on them pretty hard.
Sean Donahoe: I would say so certainly. And you can see that again, I think they underestimated a little bit of resilience, but it was certainly a way to manipulate that market, that's for sure. There's been a lot of buoyancy in that space certainly, so I think it's been ... a backfire would be an understatement. I'm trying to be diplomatic here, but yes, that screwed up. But there you go.
The next one I want to talk about is a bear raid. Now, this sounds like something out of a weird movie, but attempting to push the price of a stock down by heavy selling or short selling, hoping others jump on board and shot further in a panic sell. We've suddenly speculated that this happens a lot, but it's hard to prove and it takes a lot of capital to get that needle moving.
But again, if you have a shot position and you create a panic sell or if you'd like we were talking about earlier on, you can trigger algorithms or you can trigger the just the general public sentiment to shift because of continued short selling, that's a lot of capital.
Again, if you're already shotting bomb, that can make you a lot of money, but the amount of capital required for that is significant. It's usually done in groups, I believe. What's your take on that?
Andrew Page: Yes, that definitely seems like it would require a coordinated effort between some serious power players looking to try and make some money and at the same time exact some serious revenge on a stock or commodities in question. It almost be like cornering the market, especially for the futures market where you are just completely trying to manipulate the market regardless of any of the fundamentals or technicals.
Sean Donahoe: Yes, and I certainly believed, again, I'm not alleging anything and I've got to be careful what I'm saying, but we've certainly seen this happen where for unexplicable reasons, a stock, which has no fundamental or technical reason to do a massive drop suddenly does. We have seen this in the crypto space a lot. Again, lack of liquidity, unsophisticated traders, very much falling foul to big dumps.
And we've seen this ... I mean, I really think a lot of this was happening with bitcoin right before Christmas. I made my Scrooge McDuck prediction and I said, “It's only going to take a couple of whales to cash out or dump their stock right now and boom down now. This was right as the futures were coming out.
I think that, I'm not alleging anything but I know a lot of people were cashing out and that caused a panic sell right as the futures markets were really kind of getting established around mid-December. We were talking about this. I think it's highly possible that there was a lot going on possibly right there so interesting to see.
Okay, the next one is quote stuffing. Now this is made possible by high-frequency trading programs and algorithms that can execute market actions with absolutely blind in speed. However, HFT in itself is not illegal obviously, but the tactic involves using specialized high bandwidth hardware to quickly enter and withdraw large quantities of orders.
And is very much like one of the ones we talked about earlier on, a little bit like churning, but absolutely mega speed. I mean we're talking serious volumes, thereby gaining an advantage of a slower market participants. So they absolutely just basically just flooded volume, flood market and the exchanges with these quotes and some of these just like, holy crap, what is this and it just drives prices a little bit crazy and just get ahead of the crowd. What's your thought on that one?
Andrew Page: As small as traders such of our size, there's really nothing you can do about it.
Sean Donahoe: No, absolutely not.
Andrew Page: I would say, your best bet at avoiding freaking yourself out over this is to not look at five-minute charts or one-minute charts. Stick to hourly charts, especially for the kind of trading that we teach here. We're talking trades in networks.
Sean Donahoe: Yes, we’re dailies. Yes, we usually just go daily and that's it because we're doing the stress-free approach.
Andrew Page: Yes, I mean if you were worried about a five or 10-minute fluctuation, you are way over leveraged because if these types of moves and these high frequency programs are designed to take money from you and other algorithms by freaking you out, so just don't freak out over them.
Sean Donahoe: Yes, that's it. That's why we like that wider view. I mean we are looking at the forest, not the tree and we all take it out wider view. The timeframe then It's just nothing. Don't worry about it. It is, most of these HFTs are scalpers. They’re scalpers, they’re looking for penny here, a penny there and again just taking it from the day traders, the algos and everything else on a very, very short timeframe.
Andrew Page: Yes, definitely. It's important to know what's going on with the market. Have your finger on the pulse, what's causing that sudden movement, but don't act on it unless it's some actual major announcement. Most of the time it's noise, it's computer programs trading against each other and making it look like the world's about to fall apart when you look at those shorter timeframes.
Really just not worth at the trade in that area, especially if you don't want to live and die by each minute on the screen. That's just-
Sean Donahoe: Yes, and at the end of the day I mean, that is a royal stress bucket. It really is and that's why ... I actually started day trading a long time ago and I hated it. I actually, I went back to it recently just to actually test some algorithm stuff that I was developing for myself and for Trade Canyon and a couple of strategies in regards to that.
I was testing it on multiple timeframes, including one, three and fives and even down to tick levels. Now, the algorithm, the strategy itself was producing very nice and interesting results, but the stress level I felt tracking it. And again, following that was through the roof. I mean my blood pressure spiked and all sorts of crap.
I wasn't sleeping. I'm just like, “This is ridiculous.” Yes, I mean it's ... hey, you know what, it can be done, but it's no way near where I want to be as a trader, that's for sure.
Andrew Page: Exactly.
Sean Donahoe: Now, the last one I'm going to mention is one that we're all familiar with as a trader's and it's spoofing. Now, spoofing basically feigns interest in trading futures, stocks or any other instrument in the financial markets, creating basically an illusion of either exchange, pessimism in the particular instrument or where offers are being canceled or withdrawn or false optimism.
Or a demand when offers are being placed in bad faith and then spoofers bid or offer with the intent to cancel, kind of like we talked about with one or the other schemes earlier on before the oldest are actually filled. Now, we see this.
This is kind of along the lines of painting the tape as we mentioned, but the flurry of activity around the buy or sell orders is intended to attract other high frequency traders an algorithm to induce a particular market reaction such as manipulating the market price. When you've got that going on, you've got basically is what we're talking about.
It's trying to get those triggers, but this is specifically called spoofing because you're spoofing the interest at the exchange level and everything else. And what do you think about that one?
Andrew Page: I’m not fan. We'll put it that way. I know that there was a guy and this before, was illegal. This guy, I forget his name, but he created a program that spoofed the market and made a ton of money off this technicality and this loophole. It's since been fixed and he had to give some of the money back. But yes, I don't believe he was criminally charged because at the time it was still a loophole.
But yes, I mean, again, this is market manipulation at its finest. Basically, just creating an unfair advantage for anyone who doesn't have the technology or the capital to deal with these kinds of swings since ... again, try and ... if you're really trying to avoid falling into these traps and getting freaked out by these nonsense movements and these scheme movements that are created by individuals to make money, just don't pay attention to shorter timeframes.
Sean Donahoe: Absolutely. It's also one of the reasons we have a portfolio management and approach to trading because it reduces your exposure. Even if in all there is a particular stock is being manipulated, it's only a small percentage of your portfolio and you avoid it because all your other positions are unaffected and that's very, very important.
Andrew Page: Yes, that's really big for peace of mind and making sure you don't do some silly mistake as diversifying your portfolio. One thing goes wrong, don't worry about it when you've got other positions.
Sean Donahoe: That also assumes that you're on the wrong side of it. If you follow a lot of what we're saying. You won’t be per se because again, you've got the awareness, but it's also, we were talking about this a while ago now. I can't even ... at the SCC CAT system, which right now is taking all the information from the exchanges every night.
Again, processing all the information and then machine learning against that and everything else. The SCC is really on this but when they expand that to the broker level, which is happening, I think November of this year. Then again, that's going to be very, very interesting. I mean it's going to get to the point where it's real time. I think that's the next phase.
There is logical in that is then go real time orders get transmitted to the SCC. That will certainly help with the transparency in the markets and certainly reducing the ability to do a lot of these schemes in main markets.
Andrew Page: Definitely.
Sean Donahoe: Which is good. I mean don't get me wrong. This is a good thing, especially for the retail traders out there so they don't get caught in these pitfalls, but these things that we've talked about here today, those are the cool ways and just some of the known and common ways that the markets do get manipulated. That's why we peeled back the curtain here to look what's happening pulling the levers and the ways that the naughty, naughty people can manipulate the markets. With that being said, any last words on that?
Andrew Page: No, I think we definitely covered that and got everything we need to say on that one.
Sean Donahoe: Okay, so let's rock to the Rebel Trader tip of the week
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Sean Donahoe: The rebel trader, tip of the week. What are your long-term goals? Here's the thing. Trading is not a short thing. I see a lot of people out there promoting things, get rich quick, "Hey, make crypto while you surf," and all this other BS that's out there, or, "Hey, how to become a millionaire in the next three days trading these three stocks," or I see other ones out there that, "Hey, trade these pot stocks. You'll be a millionaire," blah-blah-blah.
It's ridiculous. There's a lot BS out there. We're not in this for the short term. This is a business. This is a real business and you've got to have long-term goals. You've got to ask yourself what all those long-term goals, why are you doing this? Why are you considering or actively trading? What is your end game? You looking to retire or looking to buy a home or is it lifestyle shift, extra income?
You see you have to determine what your long-term goals actually are and put numbers on it. Are you looking to make 100,000 in the next five years? Are you looking to make a million dollars in trading profits? Are you're looking to compound your money into your account and then compound that year after year? You've got to have your goals defined because if you don't, you'll never know when you're hitting your targets.
You have to determine the capital, how long you want to be active in the markets, your projected or realized return on capital. How you'll return will actually compound and increase your position sizes. You need to plan your trading strategies then accordingly because if you have a specific goal in mind with a number dialed next to it, whether it's an income goal or monthly goals, yearly goal, or a lump sum goal, you've got to then backtrack to what is actually possible, feasible with your strategy.
We have strategies that we can teach you as part of what we do. You can go to tradecanyon.com and we can show you exactly how you can then help yourself create those goals. Andrew, what’s your thought on that?
Andrew Page: Definitely in agreement with your long-term goals, writing things down, having a clear, concise trading plan and what you envision for yourself in the future is really important. Not only for just trading but for life in general. Again really just piggy-backing off what you were saying, stay away from those get rich quick schemes.
If you want to make a lot of money very fast, you're going to have to take a lot of risks and so it's possible to do but, chances are it's not going to work out for you.
Sean Donahoe: Yes, the lottery plays, like you were saying.
Andrew Page: The lotto plays exactly. I'm a firm believer in steady consistency and consistent profitability over the long term is the way to go. You're going to sleep better at night. You're going to stick to your plan, you're not going to trade emotionally. It's just a much healthier outlook on trading. This is not a sprint, it's a marathon.
We're taking lots of trades every year and to think that one of them is just going to pay you off for the entire year that’s a fool's errand to try and find that play because nobody knows what the future holds. Again, just I'm pretty much in complete agreement with you on that Sean.
Sean Donahoe: Awesome, and again, it doesn't matter what you're doing, it's the consistency, the long-term approach, it's the compounding of any returns that you make in the market, which is what we're all about because that just increases your ability to trade larger positions, to grow your portfolio and again, that compounding over a long period of time is what you need to consider.
That's what we're all about here. That's what it's all going. With that being said, truck on.
Automated: If you’ve got questions then we’ve got answers. Sean and Phil dive into it the mailbags for this week's rebel trader Quickfire round.
Sean Donahoe: Okay, diving into the Rebel Trader mailbag this week, we're going to have a look around here. The first question, I'm going to tackle this one. How do you know ... and we’ll both talk on this one. How do you know or suspect a move in the stock price going up or down is actually over? Now, if you've got the true answer to that one, ladies and gentlemen, you're going to be incredibly wealthy, but there are signs.
We look at obviously a certain chart patterns, candle patterns to establish well, okay, that’s looking like a movement is slowing down. We also look at some things like we mentioned earlier on the Bollinger band where the SEP500, I mentioned this in the habit now, report is playing along very nicely with the technical are almost exactly, you can see the extremes of movements and reversals.
We use shooting stars, hammers and everything else. They're candle patterns that can be indications of price action and sentiment changing. But that's what you're looking at really. Andrew, you've got any comments on that?
Andrew Page: Nobody knows the future for certain and trying to time the specific top and bottom is notoriously difficult. Again, we like to operate on the assumption that we're going for specific target areas. It looks like this is the area where a stock is going to reverse and that movement is $5 away we think is a good area to take profit. If you can nail it down to the exact spot, that's pretty incredible.
Generally, it's a waste of time to try and get it in and try and nail down a specific dollar amount or a very tight range because stocks move and there are just so many variables out there. Shooting for a general area it's a lot easier, you're going to have a lot more success. If you structure your trades around that, not trying to get paid off on hitting that exact number but maybe taking a lower dollar some figure and profits for an area that you expect the price to move to. I feel like you've just got a higher chance of getting it right.
Sean Donahoe: Yes, and you've raised a really good point in trying to find the exact, the exact bottom is a fool's errand. You can wait for a confirmation after, you might see a rally after some pivot, stocks been going down-down-down and you see a pivot and you're like, okay, or when the stocks starts rallying, and you could be the bull trap or that's just a short-term rally and then boom, keeps on going down.
You never know. You don't know what the future hold, no one does, but you can certainly look and examine what's happened before. We always talk about this, what has history shown, looking back on the charts, is history going to repeat itself, is there enough momentum, volume and everything else. What could've driven the moves or having an awareness of that from a fundamental side can certainly assist?
But again, those are the signs we start looking for. They’re signs of what may happen and not what is and that's what we're looking at. That's a very good point that you've raised there as well. Okay, now I know I've got my answer to this one on. Now you're going to have your answer to this one. I have 10k that was given to me by my parents. Is that enough to start trading? My answer is it's a starting point, but it's going to be slightly more difficult.
You are going to have to ... You've got restrictions or what you're doing in terms of options trading. Certainly, if you're doing anything intro day because you have the rules against you there, but you can it’s a starting point. It would help if you had more capital, but you can stop from that. What’s your opinion there?
Andrew Page: Yes, I don't think that the 10,000 that is too little. You can definitely do some really good options, spread trades and vertical plays with that amount. You have to put any marginal on which is good and-
Sean Donahoe: We always talk about not trading with margin will leverage guys. One of the reasons we're very much against that is because that is a trap for a lot of people, especially at the lower end.
Andrew Page: Yes, and another way to consider margin is yet this gift from your parents, which is very generous from them. Can you afford to lose it? Do you need it for school? Do you need it to pay some bills? If there are other pressing matters that need to be taken care of before you start trading?
Definitely, take care of those first. Another big question is, are you ready, have you ever traded with some before? Have you only had a couple of hundred dollars or a couple thousand before and now you're moving up to 10k? It's important that you read and you're trading system for this new amount and that you feel comfortable trading with this amount.
Again, just make sure that you are, you've got your trading plan already to go, you know the outcomes. You'd have defined losses. Again, that's why we like options trading so much. You can completely protect yourself from some crazy news event.
I mean, the volatility over the last couple months, I think really hammers home the need to protect yourself from the unforeseen, especially after the tranquility that everyone saw in 2017. That's not going to be coming back anytime soon.
Sean Donahoe: No, I don't expect so. Again, one of the things we talked about, one of the shows we did a while ago, we were talking about how this eco 2007-2008 in terms of the volatility spike. We certainly saw that in the last couple of months. The fact that you said, stop trading.
This is the question so stop trading. I would say that you need to make sure you've got your strategy dialed into like what Andrew said, but practice on a paper trading account first. You work out all your bugs in your strategy or if you want to give us a call, we'll help you with a strategy that we use.
We can show you how to do that. Paper trading is going to help you just practice iron out those wrinkles before you get started before you fall foul of not basically throwing your money into the markets and losing it. Like Andrew said, if you've got other priorities that, that money was aimed at helping you with college, going to college or what have you.
The fact you've given this by your parents kind of indicates youth. I'm hoping that's correct. But if you have other priorities or other things that spend for a consideration that stuff suddenly stopped learning the trading side. But paper trade first would be my first port of call to really kind of get a feel for the markets, what's involved without paying a very expensive education by giving that 10k to the markets and then coming out the other side saying, "well, that didn't bloody work."
Andrew Page: That's another mentality. This get rich quick scheme. Take time to learn there are trades every day. We find trades every day that is not going to change no matter what happens in the marketplace over the next few years. Don't feel this need to rush in and started trading when you're not prepared to.
There's tons of time to perfect your trading system and get out there. Don't feel rushed at all no matter what anyone's saying, just don't worry about that.
Sean Donahoe: Perfect. Now this next question, what exactly is spread trading? How does it look? I'm going to throw this one to Andrew because we were talking about this one right before the show. He had two definitions and I wanted to go through this because it was one that, funnily enough, I hadn't considered. Let's start with a bad one, the pitfall and then let's start with the next one.
Andrew Page: Okay, I've done a lot of spread trading and I get asked what that is quite often, but sometimes, especially from people I've talked to from the UK, they think of something called spread betting, which is quite different.
Sean Donahoe: It's something that I haven't done for years because I used to bet on horses, funnily enough, when I was very young, I used to make a lot of money betting on horses and I forgot about spread betting in that regard versus we actually do spreads of the different type for what we do in options. We talk about that in our training. Yes, with spread betting is a completely different thing in the UK.
Andrew Page: Again, spread betting is basically you're trying to spread bad the bid an offer price on some kind of gambling scheme or something like that. Whereas, spread trading is where you are trading the one asset versus another asset with a different time exploration. Generally, these are the same assets. A good example would be you are buying in March corn and selling April corn.
This is trading in almost its purest sense because you are only trading corn for the front month versus corn for the back month. You're just looking for the difference in price between the two different corn contracts. The reason I say this is almost the purest form of trading you can get is because you have short and long positions simultaneous.
If there is some outside market news that's not related to corn that causes the dollar to move, for example, that will translate into your corn contracts both almost equally. You're covered from those, announcements that are outside the corn market. Now inside the corn market, for this example, if blight comes out or some crop report comes out, the spread or the difference between those two contracts could shift quite dramatically in a short amount of time.
It doesn't mean that it is an assured less risky trade, but generally speaking, they require less margin. They move quite a bit slower than they're just outright futures counterparts. They're really good also for seasonal place, especially for harvests and energy consumption between summer and winter.
Really interesting form of trading that I think everyone should really look into, especially if you want to trade the future markets, but you don't want to move with that pace that those futures contracts move at a really definitely look into spread trading.
Sean Donahoe: Yes, and we do that with options and different instruments in stocks as well, debit spreads and credit spreads, which are basically very similar to what Andrew was just mentioning where we buy one option in the money and sell one out the money and vice versa for different methodologies. I won't get into too much depth here, but it's basically-
Andrew Page: There are tons of different types of spread trades.
Sean Donahoe: Yes, it's basically taking opposite positions in either different timeframes on the same instrument or different strikes, I was just mentioning, but it's basically a way to mitigate some of your risks. You kept your profits for what we do in options. Again, it creates defined parameters for where we don't lose our shares.
That's what it's all about. It's creating that risk averse or risk aversion, there's probably a better way to do it. Some spread trading actually worked very well for helping you with that. So that being said, let's move on to our favorite segment.
Automated: Don't forget if you have a question you want to ask John and Phil just go to tradecanyon.com/ourtwoquestions and your question may be featured on a future show. What's that smell? It's time to call out the Wall Street Shenanigans, mainstream confusion and outright hydrates and Holgum of so-called experts. It's time for bullshit of the week.
Sean Donahoe: Okay, bullshit of the week. This one is a doozy. Now listen back in the '80s, every time Arnold Schwarzenegger made a movie, you can guarantee it was one of the first things I was going to Watch had a lot of respect for him as a bodybuilder, as an actor, as a governor, not so much because I was in California when he was the Governator rather than the terminator, but this I have to call absolute bullshit on.
He is suing big oil. He is suing them for first-degree murder. Piggybacking on some other hype and everything else going on. Yes, the former California Governor Arnold Schwarzenegger has revealed that he intends to do actually New York's mayor. He was picking it back.
He announced that he was suing oil companies for their role in climate change, but Arnold Schwarzenegger, who is a big proponent and convert to climate change is, is suing big oil for knowingly killing people with pollution and global warming and sewing first-degree murder.
Now, here's the thing. This is why I call bullshit on this. This is the governor who used to fly to work every day on his private jet from I think it was Malibu all the way up to Sacramento, He twice-weekly travel from 2003 to 2007 and then daily travel from 2008 to 2011. Here's the thing that is 428 work days for the former from 2003 to 2007 and 754 work days minus government holidays.
That's a two way trip for one hour, which is 319 nautical miles. Each way, every trip or every hour, sorry, is 479 gallons of jet fuel burn per hour. Now if you extrapolate all this out, all the Arnold Schwarzenegger used, 1,132,356 gallons of jet fuel or 10,837 metric tons of jet fuel to get to and from work. He says he bought carbon credits to offset that and everything else, but I still got a cool bullshit on that.
It’s just absolute nonsense. It’s Just absolute hype and nonsense on that. What do you think about that entry?
Andrew Page: Well, I definitely agree with that like this idea that Arnold Schwarzenegger is going to be able to sue the oil companies and get away from killing people. But that being said, a lot of energy companies have definitely lied about their role in climate change and have hidden a lot of climate data because it would be detrimental to their business.
This is a serious issue if you believe in climate change, which I do it going forward if we want to, protect the planet and protect our ecosystems and our way of life, we need to make meaningful changes on a daily basis about our consumption habits. It shouldn't. The onus is not just on the oil companies, even though they are responsible for lying to the public.
It's about our consumption habits as individuals. This idea of mass consumption that we've really gotten into and it's not healthy for the planet. If we really want to see meaningful change, it has to start at home and his pumped-up show, I don't know if it's really going to do any good. It was, but I really don't know or really expect it to go very well.
Sean Donahoe: I don't think it's helpful. It's just, it's just noise and it just trying to hide himself up, which again it's an act of okay fine. But I just thought this is bloody ridiculous. This is ridiculous.
Andrew Page: Especially if he loses, it's going to make it harder to exact justice on these large energy companies later on for charges that are actually more substantial and so that, that's what really bothers me about it.
Sean Donahoe: If there's legitimate bullshit from the oil companies and it gets exposed, then absolutely deal with it. But that's, that's a legal framework, that's a proper deal not this stupid showboating and that’s what this really is. If there are things that are going on if there are environmental impacts and everything else that again, data and everything else provides and shows, and absolutely nail him to the cross.
That's exactly what needs to be done. The end of the day, yeah, the oldest grandstanding and showboating by New York marathon and Schwarzenegger and anyone else jumping on the bandwagon, sure, it may have an impact. It raises awareness, but it's only what's going to come with that. It's more attention to Arnold fine, but it's not really helping any process really as you say, correctly, identify whether you're pro. Again, this is how we're talking controversial terms here.
There are these things I usually avoid climate change, religion, politics, those are the three topics I usually avoid like the plague, but at the end of the day, those are conversations that need to be heard whether you are pro, or you believe in climate change or you don't believe in climate change, holding accountability for those that are bullshitting across the board that's what we do here with the bullshit of the week and that's what it's all about.
With that being said, that is the end of this weeks show how and it was a doozy. We had some very interesting moments in this. We had again, touching on some is such some subjects, instance things that just trying to help you have a greater awareness of what really happens in the markets, the manipulators, what things are going on and some insights that may help you again, row your portfolio.
But remember, this show is not for a year. It will cost you a five-star review. Just go into tradecanyon.com/rebeltraders and you could subscribe and review us on your favorite way to listen to the show. If you want to connect to us on the twitter machine as Phil likes to say on Facebook or flip book or whatever, you can also do that at the same location tradcanyon.com/rebeltraders would love to hear from you.
In next week's show, we're going to show you the three core ways to fix your trades. So with that being said, any last words, Andrew?
Andrew Page: Just stick to your plan and, and keep practicing your trading before you go out there and do it live.
Sean Donahoe: Absolutely, okay, rock on. We'll see you next time. Take care for now.
Automated: For more cutting-edge trading advice and to free trade a workshop to help you build a customized trading plan and make smarter trading decisions. Going to tradecanyon.com now.
Automated: Futures, options on futures stock and stock options. Trading involves a substantial degree of risk. It may not be suitable for all investors. Past performance is not necessarily indicative of future results. tradecanyon.com provides online training and educational information. If you actually understood and listened to this, then that means you are awesome. Congratulations and well done. Notice this product may contain nuts.

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[00:00:10] Show Introduction

[02:17] Sean: Let's get started. Little bit of Wizard of Oz. I hope that doesn't make me Dorothy and Andrew, Toto. We're gonna highlight a few of the schemes that manipulate the market. We always hear the markets are rigged. It's a giant casino. Those banksters. Those Wall Street yahoos. It's all rigged. It's all BS. We make money in the markets every damn day. It isn't rigged, but there are times when it's manipulated. That's why we have regulators like the SEC, the FTC, and every other three-letter organization with men with clipboards and windbreakers who are very much trying to make sure this doesn't happen. We're gonna talk over a few of the schemes that are out there. You can either step out of the way and let everyone else get hit by the bus or you can take advantage of the situation you may see unfolding in front of you. Now with that being said, let's start with the one everyone's heard of, especially crypto and penny stock traders. It's the classic pump and dump. This is where promoters have either a large position in advance and then promote the heck out of a stock. We see them promoting these stocks. They're the next big thing. They actually all have syndicates. This is one of the big things in the cryptocurrency world, but more so right now, the crypto world. There are syndicates - all paid subscribers. They communicate on social media and chat apps. The notice goes out that this one is being pumped, then everyone jumps in, ride the stock up, and dumps at the same time. Others are attracted and get in an invest and then boom - at the high, everyone signals to dump and boom. You've made your profits and everyone else is left holding the bag. We've seen this across the board. We've seen it in the main markets occasionally, but it's much more scrutinized there so it's ripe for crypto. But Andrew, you're familiar with this one.

[05:28] Andrew: There are lots of these schemes out here, especially as you say targeted at penny stocks and cryptocurrencies. They prey on people wanting to get rich quick. However, these schemes don't just affect dim-witted and unsophisticated investors, a lot of IPOs are actually pump and dump schemes but with a legal coat around them.

[05:58] Sean: I love that. That is something I was going to allude to, but you went there. IPOs are pump and dump. They are highly hyped in the media, promoted with the institutional investors already getting their preferential price before it goes out to the public.

[06:22] Andrew: I'm not sure if everyone is aware of the mechanics behind an IPO. A private company wants to go public so they ask an investment bank to help them. The bank will value the company and give the company a large chunk of cash for the stock. The company has their money. They're good. It's now the investment bank's job to sell that stock for a profit. They'll get the shares and maybe pay $25 a share and they're gonna try and at least make 10% on that. They'll go around and do what's called a 'road show'.

[06:22] Andrew: I'm not sure if everyone is aware of the mechanics behind an IPO. A private company wants to go public so they ask an investment bank to help them. The bank will value the company and give the company a large chunk of cash for the stock. The company has their money. They're good. It's now the investment bank's job to sell that stock for a profit. They'll get the shares and maybe pay $25 a share and they're gonna try and at least make 10% on that. They'll go around and do what's called a 'road show'. They go across the country to large investors, get people hyped, get media attention. IPO day comes and you see that 30% spike. But a month later, it's down 15%. Classic pump and dump. The companies do have a real value, it's just been inflated by the investment banks. Even if you fell into the pump and dump, over the long haul, you'll still make money. They operate with that FOMO mentality.

[07:56] Sean: This is a golden rule of IPOs. Wait a year. You've got the history, the data, all the bullshit settled down, and again, all of that hype and shenanigans are out of the way. Now you actually see what the company is doing on a day to day basis. That's my golden rule. If you look at Snapchat as a prime example, that was classic. Sometimes they take off. Sometimes they don't. I don't like speculating. I like trading for profit. I don't want to hit that first day and try to get filled. Brilliant example of a legal pump and dump. The next one is painting the tape or running. Now this is not front-running, which we'll talk about.This is when a group of traders create activity or rumors in order to drive the price up. There's another variant on this where you start placing orders but cancel them. It creates initial interest as it's reported on the exchanges and can report other investors to run the price up. We see this a lot.

[09:47] Andrew: It's almost a catch phrase, a self-fulfilling prophecy. Buy the rumor, sell the news. When people can take advantage of it using schemes like this, they're pretty successful a lot of the times.

[10:03] Sean: Yeah. Over here it's more called painting the tape. In other parts of the world, it's called running. We saw this recently where there was a lot of painting the tape. It's if you see a lot of buy orders for a particular equity, it can trigger algorithms, HFT, a significant movement. But if those orders are canceled, what's the algorithm gonna do if it's filled? As you learn what algorithms are triggered by, you can then manipulate them to certain situations. We saw that with the major correction we had. Certainly with the rate of descent, you can be guaranteed that event was triggering a lot of algorithms to sell to get out of their positions, it wouldn't be hard to assume you could start triggering and learning what levels need to be done. Big buy orders not getting filled and you cancel them, that doesn't cost you a dime. But if you do it too many times, the men in windbreakers will be having a look. Next one is front-running.

[12:00] Andrew: This is like insider trading where you know something, you're beating the market to the punch. It's difficult to do because the SEC is really good at spotting this. There was an FOMC announcement 3 or 4 years ago and this company in Chicago had got a copy of the FOMC minutes a little earlier than everybody else. They were able to analyze it and formulate their plan. But they placed their trades a little too early, by nanoseconds, earlier than it would be physically possible to for the data to move from Washington D.C. to Chicago.

[13:05] Sean: That is amazing. Nanoseconds. That is the epitaph of front-running.

[13:27] Andrew: I would say the other big definition of front-running is where your brokers are trading against you as a client because they have some kind of inside information that you don't. Basically the same thing, but where the broker is actively trying to screw you.

[13:45] Sean: And we know plenty of brokers who let's just say are not that scrupulous. This reminds me of Trading Places. You know me and Phil love that movie. They got the orange futures report way before everyone else and Andrew made a very funny comment about the two heros.

[14:12] Andrew: This came to me a couple weeks ago. These guys are breaking the law.They stole an agriculture report, put out a fake one to their former bosses and basically cost the millions of dollars for personal gain.

[14:41] Sean: Yeah, it's basically a big con and highly illegal and the very thing we talk against a lot of the time but we love that bloody movie. Bloody funny movie but they are criminals at the highest level. So anyway, next one we're gonna talk about. Churning. This is when a trader places both a buy and sell order at the same price. This creates and increase in activity and it's intended to attract additional investors and increase the price.

[15:29] Andrew: You see a lot of it in the less regulated markets like penny stocks and crypto.

[15:41] Sean: It's a spike in volume of something going on.

[15:46] Andrew: It pops up on the radar and that's the point of it with the goal of driving it in one direction or another so the perpetrators can make some money. Definitely a lot harder to do in the stock market. You need quite a bit of volume, computing power, and programming skills to pull that off.

[16:13] Sean: And a lot of capital. That one's harder to do and it will get you a lot more scrutiny. The next one is one of the most common ones we see, in fact you probably seen this one and didn't know it. Stock bashing. This is where you see the news, the rumor mill, the message boards with bad or false or even misleading news to push down the price. This is usually done by short sellers in concert with dodgy people. Or, investor relations firms who have convertible notes that convert for more shares the lower the bid ask actually is. Basically, the lower the price is driven, the more stocks can convert and pick up stock at a lower price. Then they reverse the rumor mill and stock price goes up. A prime example recently, and unless you're caught saying misleading information, but if you have a short position, I saw this with Shopify. A very famous short seller was talking about Shopify and they don't have as many active stores as they claim. Most are actually dead and it really hit their stock prices. But he was a short seller on that, but he also came out to "justify his short position" but it was all over the media. It tanked the stock so he made money. We see this a lot in other areas where people are taking short positions. You can actually kind of look at that. It's hard to separate genuine bad news from promoted bad news, but it does create that impression. Look at Snapchat. There were swaths of bad news right after that IPO. We also had Blue Apron, because of what happened with Snap, they cut their initial public offering down to $10 from $20, and when they came out, there was stuff about Amazon could be starting their own food service and it could crush Blue Apron right at the time of their IPO.

[19:48] Andrew: If you at glance can tell the difference between fake and real bad news, you're gonna make a lot of money in this lifetime trading. I don't know if this falls into stock bashing, but there was a celebrity coming out...

[20:15] Sean: Kendall Jenner. She said does anyone use Snapchat anymore? I haven't opened that up for months and it tanked the stock 10%.

[20:25] Andrew: That would have been really funny if she were in on a scheme.

[20:30] Sean: We're not alleging anything here. But here's the thing. How vulnerable is your company when a tweet by someone who's only talent is surface based crashes your stock 10%? That shows how vulnerable your company truly is.

[21:03] Andrew: I agree. I just thought it was really funny who's not the president makes the stock fall 10%.

[21:20] Sean: That was not good. For the record, I'm not an investor or a speculator in Snapchat, although I did have a short position a little while ago. But Snapchat is not a company I expect to go very far. Now let's look at slingshotting. This is where an institutional investor through its purchasing power has the ability to drive prices down but then buy back into the stock. Just because they've got the ability to short, short, short and have driven it down enough, they buy back into the stock and buy back up during the rally. We saw this with Barkley's in 2014 with their gold price fixing.

[22:24] Andrew: At the time, I was a commodities broker. I remember Goldman Sachs coming out and saying Gold's going to $1200. I said we should short it, so I shorted one for my client and he made a decent amount. I was wondering why gold was dropping so fast and so hard and later we found out.

[22:50] Sean: Naughty, naughty. A lot of hands were slapped with that and they promised they would never do that again, but there is a lot of price fixing. We know that. It exists.

[23:04] Andrew: You can kind of consider OPEC's scheme to push down oil prices as a slingshotting scheme, though I would said that backfired pretty hard.

[23:17] Sean: I would say so certainly. You can see they underestimated a little resilience but it was certainly a way to manipulate that market. There's been a lot of buoyancy in that space. A backfire would be an understatement. The next one is a bear raid. Attempting to push the price of a stock down by heavy selling or short selling hoping others jump on board and short further in a panic sell. We've certainly speculated this happens a lot but it's hard to prove and it takes a lot of capital to get that needle moving. If you have a short position and you create a panic sell or you can trigger algorithms or the general public sentiment to shift, that can make you a lot of money. It's usually done in groups.

[24:44] Andrew: That definitely seems like it would require a coordinated effort by some serious power players. You are just trying to manipulate the market regardless of fundamentals or technicals.

[25:10] Sean: We've seen stocks with no reason to drop take massive drops. But we have seen this in the crypto space. Lack of liquidity, unsophisticated traders, very much falling foul to big dumps. I think this was happening with Bitcoin before Christmas and said it would only take a couple of whales to cash out or dump their stock right now. This was right as the futures were coming out. I'm not alleging everything but there was a panic sell around mid-December as the futures markets were getting established. The next one is quote stuffing. This is made possible by HFT programs that can execute market actions with blinding speed. HFT is not illegal, but the tactic involves using specialized high bandwidth hardware to quickly enter and withdraw large quantities of orders at mega speed, thereby gaining an advantage. They're flooding the exchanges with these quotes and it drives price crazy.

[27:19] Andrew: As traders of our size, there's nothing you can do about it. Your best bet is to not look at five minute charts or one minutes.

[27:44] Sean: We're dailys for stress-free.

[27:52] Andrew: If you were worries about a five or ten minute fluctuation you are way over leveraged because these types of moves and HFT programs are designed to take money from you and other algorithms by freaking you out. So just don't freak out.

[28:11] Sean: That's why we like that wider view. We are looking at the forest, not the view. Most of these HFTs are scalpers, looking for a penny here, penny there and again, just taking it from the day traders, the algos, on a very short time frame.

[28:35] Andrew: It's important to know what's causing that sudden movement. But don't act on it. Unless it's some major announcement, most of the time, it's noise. It's computer programs trading against each other and making it look like the world's about to fall apart when you look at those shorter timeframes. Really just not worth it to trade in that area, especially if you don't want to live and die by each minute on the screen.

[29:07] Sean: It is a royal stress bucket. I started day trading a long time ago and I hated it. I went back to it recently to test some algorithms I was developing for myself and Trade Canyon and a couple strategies on multiple time frames, even down to tick levels. The algorithm and strategy itself produced interesting results, but the stress level was high. My blood pressure spiked. I was like this is ridiculous. The last one I'm gonna mention is one we're all familiar with - spoofing. Spoofing feigns interest in trading futures or other instruments, creating an illusion of exchange pessimism, when offers are being withdrawn, in the particular instrument or false optimism, when offers are being placed in bad faith. Spoofers bid or offer with the intent to cancel before orders are filled. It's along the lines of painting the tape, but the flurry of activity around the buy or sell orders is intended to attract other HFT traders and algos to induce a market reaction such as manipulated market price. When you've got that going on, it's trying to get those triggers. But this is called spoofing because you're spoofing the interest at the exchange level. What do you think about that one?

[31:26] Andrew: I'm not a fan. I know there was a guy before it was illegal who created a program that spoofed the market and he made a ton of money off this loophole. It's since been fixed and he had to give some money back but he hasn't been criminally charged because at the time it was a loophole. Again, this is market manipulation at its finest. Creating an unfair advantage for anyone who doesn't have the technology or capital to deal with these kinds of swings. If you're trying to avoid falling into these traps and getting freaked out by these nonsense movements created by individuals to make money, just don't pay attention to shorter time frames.

[32:20] Sean: Absolutely. It's also one of the reasons we have a portfolio management approach to trading because it reduces your exposure. Even if you are in or there is a stock being manipulated, it's only a small percentage of your portfolio.

[32:48] Andrew: That's really big for your peace of mind and making sure you don't make a silly mistake and diversifying your portfolio.

[32:58] Sean: Now that assumes your on the wrong side of it. If you follow what we're saying, you won't be because you've got the awareness. The SEC's CAT system is taking all the info from the exchanges every night and processing and machine learning. When they expand that to the broker level in November, that's gonna be interesting. It's gonna get to the point where it's real time. I think that's the next phase. Real time orders get transmitted to the SEC. That will help transparency in the markets and reducing the ability to do a lot of these schemes in the markets, which is good. Don't get me wrong. This is a good thing, especially for retail traders. But these things are the known and common ways the markets do get manipulated. With that being said, any last words?

[34:40] Andrew: No, I think we covered that.

[34:42] Sean: Okay so let's rock on to the Rebel Trader Tip of the Week.

[00:33:44] Rebel Trader Tip of the Week

[35:04] Sean: So, Rebel Trader Tip of the Week. What are you long-term goals? Trading is not a short hit. I see a lot of get rich quick stuff. Make crypto while you surf and all this other BS. How to become a millionaire in the next three days trading these three stocks or trade these pot stocks. We're not in this for the short-term. This is a business. You've got to have long-term goals. Ask yourself, why are you doing this? Why are you considering or actively trading? What is your endgame? Are you looking to retire or buy a home? A lifestyle shift? Extra income? You have to determine what your long-term goals are and put numbers on it. Are you looking to make 100,000 in the next 5 years, or a million? Are you looking to compound your money into your account year after year. You've got to define your goals. If you don't you'll never know when you're hitting your targets. You have to determine the capital, how long you want to be active in the markets, projected or realized return on capital, how your returns will actually compound, and increase your position sizes. You need to plan your trading strategies accordingly. If you have a goal in mind with a number - income, monthly, yearly, or lump sum goal - you've got to then back track to what is actually feasible with your strategy. We have strategies we can teach you and show you how to help yourself create those goals.

[37:26] Andrew: Definitely in agreement with you. Long-term goals, writing things down, having a clear plan, and what you envision for yourself in the future not only for trading but for life in general. Stay away from get rich quick schemes. If you want to make a lot of money very fast, you're going to have to take a lot of risk. It's possible, but chances are it's not gonna work out.

[38:02] Sean: The lottery plays.

[38:02] Andrew: Lotto plays. Exactly. I am a firm believer in steady consistency over the long-term. You're gonna sleep better at night. You're gonna stick to your plan and not trade emotionally. It's just a much healthier outlook on trading. This is not a sprint, it's a marathon. To think one trade is gonna pay you off for the entire year is a fool's error. Nobody knows what the future holds.

[38:49] Sean: Awesome. It doesn't matter what you're doing. It's the consistency. It's the compounding of returns so you can trade larger positions. Let's rock on.

[00:57:47] Quickfire Round

[39:28] Sean: Okay so, diving into the mailbag, the first question is "How do you know or suspect a move in a stock price going up or down is actually over?" If you've got the true answer, you're gonna be incredibly wealthy. But there are signs. We use chart patterns, candlesticks to establish signs it's slowing down. We use bollinger bands. You can see movements and reversals. There are candle patterns that can be indications of price actions and sentiment changes. But that's what you're looking at really.

[40:39] Andrew: Nobody knows the future for certain and trying to time the specific top and bottom is notoriously difficult. We like to operate on the specific on the assumption that we're going for specific target areas. It looks like this is the area a stock is going to reverse. That movement $5 away, we think is a good place to take profit. If you can do that, generally it's a waste of time to try and get it on a specific dollar amount or tight range. Stocks move and there are just so many variables out there. Shooting for a general area is a lot easier and you're gonna have a lot of success. You've got a higher chance of getting it right.

[41:48] Sean: Trying to find the exact top or an exact bottom is a fool's error. You can wait for a confirmation or rally after a certain pivot. Stock's been going down, see a pivot, stock starts rallying, it could be a bull trap, stock keeps on rallying and boom. Keeps going. You never know. You can look and examine what's happened before. What has history show? Will it repeat itself? What could have driven the moves? Those are the signs we start looking for, of what may happen, not what is. I know I've got my answer to this one and you will too. "I have 10k that was given to me by my parents. Is that enough to start trading?" Now my answer is, it's a starting point but it's gonna be slightly more difficult. You've got restrictions for what you're doing in terms of options trading, especially intraday because you have rules against you. But you can. It would help if you had more capital.

[43:32] Andrew: I don't think 10,000 is too little. You can do some good options spread trades and vertical trades. You don't have to put any margin on which is good.

[43:51] Sean: We always talk about not trading with margin or leverage. One of the reasons is that's a trap for a lot of people, especially at the lower end.

[44:01] Andrew: Another thing to consider is can you afford to lose it? Do you need it for school? To pay bills? If there are more pressing matters before you start trading, definitely take care of those first. And, another big question is are you ready? Have you ever traded with this sum before? Have you only had a couple hundred or couple thousand and now you're moving up to 10k? It's important you re-tune your system to this amount and that you feel comfortable trading with this amount. Have defined outcomes. That's why we like options, you can completely protect yourself from a news event. The volatility over the last couple months hammers home the need to protect yourself, especially after 2017's volatility. That's not coming back any time soon.

[45:11] Sean: No, I don't expect so. We talked about how this echoed 2007/2008. But the fact that you said start trading... I would make sure you've got your strategy dialed in to echo what Andrew was saying. Practice on a paper account. We can show you how to do that but paper trading will help you iron out wrinkles before you throw your money into the markets. If you've got other priorities, college or what have you, consider that. Start paper trading and learning without paying an expensive education by giving that 10k to the markets and by saying well that didn't work.

[46:40] Andrew: That's another mentality, this get rich quick scheme. There are trades every day. That is not going to change not matter what happens with the markets. Don't feel a need to rush and start trading when you're not prepared to. There's tons of time.

[47:13] Sean: Perfect. This next question. "What exactly is spread trading? How does it work?" I'm gonna throw this one to Andrew because he has two definitions. Let's start with the bad one.

[47:38] Andrew: Okay. I've done a lot of spread trading and I get asked what that is quite often, but sometimes people from the UK people think it's spread betting, which is quite different.

[47:54] Sean: It's something I haven't done for years. I used to bet on horses and make a lot of money. We actually do spreads of the different type for options.

[48:18] Andrew: Spread betting is you're trying to spread bet the bid and offer price on some type of gambling scheme or something, whereas spread trading is you are trading the one asset versus another asset with a different time expiration. Generally, these are the same assets. A good example would be buying March corn and selling April corn. This is trading in almost its purest sense. You are only trading corn for the front month versus the corn for the back month. You're just looking for the difference in price between the two corn contracts. The reason I say this is almost the purest form of trading you can get is because you have a short and long position simultaneously. If there is some outside market news that is not related to corn that causes the dollar to move that will translate into your corn contracts almost equally. You're covered from those announcements outside the corn market. Inside the corn market, if a blight comes out or some crop report comes out, the spread or difference between those contracts could shift dramatically in a short time. It doesn't mean it is an assured less risky trade, but generally speaking, they require less margin, they move a bit slower than their outright futures counterparts. They're really good for seasonal plays - harvest and energy consumption between summer and winter. Really interesting form of trading that everyone should look into, especially if you want to look into futures markets but you don't want to move at that pace that those futures contracts move at.

[50:24] Sean: We do that with options and different instruments, debit spreads and credit spreads. We buy one option in the money and sell one out the money and visa versa.

[50:46] Andrew: There's tons of different types of spread trades.

[50:47] Sean: It's basically taking opposite positions in different time frames on the same instruments or different strikes, but it's a way to mitigate some of your risks. You cap your profits for what we do in options, but again, it creates defined parameters for where we don't lose our shirts. It's creating that risk aversion. Spread trading works very well for helping you with that. With that being said, let's move onto our favorite segment.

[00:51:29] Bulls**t of the Week

[51:55] Sean: Okay, this one is a doozie. Back in the 80's, every time Arnold Schwarzenegger made a movie, you can guarantee it was one of the first things I was gonna watch. Had a lot of respect for him as a bodybuilder, as an actor, as a governor, not so much because I was in California when he was the Governator. But this I have to call bullshit on. He is suing big oil for first degree murder. Piggybacking on other hype. He is a big proponent and convert to climate change is suing big oil for knowingly killing people with pollution. This is the governor who used to fly to work everyday on his private jet from Malibu to Sacramento. Twice weekly travel from 2003-2007 and daily travel from 2008-2011. That is 428 work days and 754 work days. That's a 2-way trip for one hour which is 319 nautical miles and every hour is 479 gallons of jet fuel burned per hour. If you extrapolate, Arnold used 1,132,356 gallons of jet fuel or 10,837 metric tons of jet fuel to get to and from work. Now he said he bought carbon credits to offset that but I still gotta call Bullshit on that. Absolutely nonsense.

[54:26] Andrew: I agree with that, this idea that Arnold Schwarzenegger is gonna be able to get away with suing the oil companies, but that being said, a lot of energy companies about their role in climate change and have hidden a lot of climate data because it would be detrimental to their business. I think this a serious issue if you believe in climate change, which I do. Going forward, if we want to protect the planet and protect our way of life, we need to make meaningful changes on a daily basis about our consumption habits. The onus is not just on the oil companies even though they are responsible for lying to the companies, it's about our consumption habits of individuals. It is not healthy for the planet. If we want to see meaningful change, it has to start at home. I don't know if this kind of pompous show is going to do any good. It creates a buzz.

[55:47] Sean: I don't think it's helpful. It's just noise. He's just trying to hype himself up. It's just ridiculous.

[56:06] Andrew: Especially if he loses, it's gonna make it harder to exact justice on these large energy companies later on for charges that are more substantial.

[56:14] Sean: If there's legitimate bullshit that gets exposed from the oil companies, absolutely deal with it. But that's a legal framework, not this stupid showboating. All this grandstanding may raise awareness, but what's gonna come of that? It's not really helping any process. At the end of the day, those are conversations that need to be had whether or not you believe or don't believe in climate change. That is the end of this week's show, and it was a doozie. We had very interesting moments. Just trying to help you have greater awareness and some insights that may help you grow your portfolio. But remember, this show is not free. It will cost you a five star review. Just go to tradecanyon.com/rebeltraders and you can subscribe and review us on your favorite way to listen to the show. If you want to connect with us on the Twitter Machine or Facebook, you can do that at the same location. In next week's show, we're gonna show you the three cool ways to fix your trades. With that being said, any last words?

[58:46] Andrew: Stick to your plan and keep practicing your trading before you go out there and do it live.

[58:50] Sean: Absolutely. Okay rock on. We'll see you next time. Take care for now.

Resources & Links Mentioned in This Week's Show

3 Key Takeaways From This Show

  • Have a long term plan for what you want from your trading and allocate capital and plan strategies accordingly.
  • If you are just starting, practice with paper trading (Software based) first to save learning expensive lessons.
  • A diversified portfolio of stocks will help avoid market manipulation and as a more sophisticated trader you can be aware of the pitfalls and avoid them.

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