Rebel Traders 061 : Dirty Tricks and Filthy Secrets

We're diving down some dark alleys, like masked vigilantes, and venturing in to the underbelly of the stock market and the world of trading to discuss the dirty tricks and filthy secrets of the industry and how to combat them.

What kind of market manipulation do some hedge funds use to manipulate stock prices? Are some market makers up to some “Interesting” activity? Are some brokers really playing by the rules or making it up as they go along? Well, while there are a lot of good people in this industry all it takes is a few bad apples and a bag of dirty tricks to sully the industry. In this weeks show, we shine a light on a few of those “Interesting” filthy secrets and put them in our sights...

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Sean Donahoe: We're taking a dive down some dark alleys like masked vigilantes and venturing into the underbelly of the stock market. Are you ready? Let's do it.
Automated: Rebel Traders takes you inside the world of two underground master traders who take an entertaining and contrarian look at the markets to cut through the noise of Wall Street and help you navigate the trading 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, hey, hey, this is Batman, and I'm joined today by Robin. No, it's Mr Sean Donahoe and Mr Phil Newton. As always, with the Rebel Trader podcast. How are you doing, Phil? You doing alright, sir?
Phil Newton: I'm not sure if I approve of being, once again, referred to as a sidekick. You and I both well know that I'm the driving force behind this show.
Sean Donahoe: Well, you're certainly a force, driving or otherwise, you're a force. Force or a farce, I'm not sure which one.
Phil Newton:
Sean Donahoe: Yeah, there you go. Okay, Batman and Superman.
Phil Newton: farce, isn't there?
Sean Donahoe: Yeah, there you go. Yeah, I was going to say, we're either DC universe, which makes us the Justice League, or we're more like Marvel's Avengers. I'm not sure which, but I'm not going to get into the comic book debate.
Phil Newton: Well, it's too late, 'cause you jumped feet first straight in there.
Sean Donahoe: I absolutely bloody did.
Phil Newton: What we can say, it's all your fault.
Sean Donahoe: Absolutely. My guess, that makes you Wonder Woman, so you can choose between Robin or Wonder Woman.
Phil Newton: Oh, dear God. Do I have to break out the weekend attire for the midweek show, is that what you're trying to tell me?
Sean Donahoe: Yes, absolutely.
Phil Newton: You know I've got a fetish about the shoe shop on the high street. Trust me, it's just the story. Or is it?
Sean Donahoe: Absolutely. Finger to the corner of the mouth there and everything else. But yeah.
Phil Newton: If there was a camera, I'd be cheekily looking at it sideways.
Sean Donahoe: Indeed, indeed. Very coyly as well. So anyway, what we're going to do today, guys, is we're talking about market manipulation, and the kind of the dirty tricks that go on under the hood. Things that you may look at the markets, maybe, you know, "Hey, what's going on with market prices?" Some things you need to be aware how to deal with them, or how to avoid them altogether. What to look for, and basically, you know, look at some of the things that happen behind the scenes. And this might get into a little interesting debate about some of the things that we've personally experienced, we know from the industry and it's basically the few bad apples and the bag of dirty tricks that sully this industry. Because, let's face it, stock market trading is full of hype, it's full of stories, and what's the ...
Phil Newton: Attention whores, that's what they are, Sean.
Sean Donahoe: Very much so, but also the first thing that everyone does is they point the finger at Wall Street at any time something goes wrong.
Phil Newton: It's those nasty shorters. It's the shorters.
Sean Donahoe: Oh, absolutely.
Phil Newton: No, it's not!
Sean Donahoe: It's the guys at the short shots.
Phil Newton: You just can't trade for shits! That's what it is! You're making bad decisions!
Sean Donahoe: I know, how about that for change, eh? Oh, dear me. Anyway, we're going to be diving into this and kind of shine a little bit of a light on a few of those interesting dirty secrets. So, what else have we got going on?
Phil Newton: Might be having a little bit of fun with it, surprise, surprise. What we also need though, Sean, is one of those, do you remember in the nineties, I'm thinking You've Got Mail type thing? You've Got Mail. Little soundbites, just to intro the next segment, because we have got a mail bag. It's a digital mail bag, which is why I'm going for the You've Got Mail. What was it, AOL? From all those moons ago?
Sean Donahoe: Absolutely, yes.
Phil Newton: Yes, we're going to try and answer some questions. Whether we get a sensible answer from them is a different question entirely, because by now you must know that we try not to be so serious. "Why so serious?" With all these trading questions.
Sean Donahoe: Indeed, that is it. I guess that makes me Batman and you The Joker? with that.
Phil Newton: I'll be The Joker. Yeah, I'll take that one. I'll take that one. Your arch nemesis. So of the week, we call out the hyperbole, the shenanigans, the nonsense and the general tomfoolery of the industry, and somewhere amongst of our own shenanigans, we're going to ask the core question of where is the trade? And this week, we might even try and answer that said question as well.
Sean Donahoe: That would be a good change. Good for a change.
Phil Newton: It's what we always say, but we never get round to it. Occasionally.
Sean Donahoe: Yeah, yeah, yeah. Occasionally. Okay. So anyway, let's get started. I'm going to tackle five different aspects of not only market manipulation but things to look out for as you're trading, what's going on, how it works and everything else. So let's start with the Donald Trump favorite special, "You're fake news." Now, what do I mean by this? Let's face it, trust in the news is at an all time low. And I mean, Phil, we've been this story.
Phil Newton: Sean, that's what I want to know.
Sean Donahoe: Well, there you go, yeah. So I mean, listen, the news cycle is, hey, look, it's hype driven. The news cycle is always there to, as Phil mentioned at the very start here, it's to get your attention. What is your attention for? Is it to help you with your trading? Is it to help you make better decisions? Is it really there to try and get something going in your portfolio? No. It's to get you, and your attention, on their ads.
Phil Newton: That's an interesting point, isn't it? Here's an interesting though. When you think about the news, whether it's fake or not fake, but just think in mind, what's the product? So from the user, from the viewers point of view, we think that the product is the news, and the reality is that the news isn't the product. The viewer is the product, because how they make money is selling advertising. That's how it works.
Sean Donahoe: The audience, absolutely.
Phil Newton: So when you have that in mind, you as the viewer is the product, that's what they are selling. Because that is, without your eyeballs, they don't make money. So when you think about it in that context, I don't know about you, Sean, but I have a holy shit moment when I, you know, when I think about it in that context. So you've got to be thinking, what's the angle? What's the motivation behind, you know, however they're trying to get your attention? It's, "Look at me!" Jim Cramer, love him or hate him, classic example of attention whore.
Sean Donahoe:
Phil Newton: You know, whether you like him or hate him, he does a great job of making what is essentially a really dull and boring subject entertaining. You know, and that's their job. They're getting the eyeballs, because you're the product. And the more controversial that he is, whether he's right or wrong on his opinions or viewpoints, he's got the audience. And when you think about it like that, you, the viewer, is the product. And again, when I think about it like that, I have this, like, epiphany, if you like, of why would I be watching this? What's the narrative behind the scenes? What are they selling? What are they trying to drive eyeballs to? And I don't know, it just makes it a little bit weird. I'm not a big fan of watching endless hours of television anyway, but I'm very selective on what I do watch, and this is the reason. I'm constantly thinking about what's the reason for this?
Sean Donahoe: Now, the other thing is, and you're absolutely right, it's the same with social media. This is the, you know, social media, you are the product, you are the biggest commodity, and I buy that commodity with my paid advertising, 'cause that is what, that's where they make money.
Phil Newton: I'd just like to interject again, Sean. I've not got a problem with it. What I do have an objection over is the oversensationalized, grab your attention veer, weird and crazy and oversensationalized and hypey and clickbaity and almost fake news, and making something sound more dramatic than it actually is. That's what I object to. I've got no problem with advertising, 'cause I use it myself. You know, use viewers' eyes for my business, or we use it for our mutual businesses. You know, there's nothing wrong with it. It's just be honest about it. Yeah, we've got something to sell, but we want to make sure that it's right for you. We're not trying to oversensationalize what we're doing. We're just, hey, this is what we do, and it's really, absolutely fucking great, what we do, but it's not right for everyone. So I think that's an honest narrative.
Sean Donahoe: Now, where does the market manipulation come into all this? Okay, we could get on our soapbox about the news cycles, which we often do, but here's the thing. They are always looking for fresh and new, interesting, hype driven content that can, again, get eyeballs, get attention. So what happens is a lot of companies, and it's not just, I mean, we talked about short sellers, but short sellers, banks, pre-IPO companies and all that good stuff.
Phil Newton: Everyone's looking to finger for the blame.
Sean Donahoe: Well, that too, but what they're doing is they use the media to creative narratives. Now, the narrative might not be entirely true, but they can seed stories. They can seed interest. They can seed rumors, right in the news, that gets picked up if it's juicy enough, and then it becomes viral, starts going everywhere.
Phil Newton: Yeah. Who's that hedge fund dude? We mentioned him the other week. Was it I can never remember his ...
Sean Donahoe: I can't remember. I know the guy you mean. We were struggling with it last time.
Phil Newton: Icahn, Icon? Carl Icahn, is that right?
Sean Donahoe: That sounds right.
Phil Newton: Something like that. I can't remember. I pay very little attention to the idiots, but he's one that kind of springs to mind. He uses that sensationalized fake news to drive his own narrative, 'cause when he's got ...
Sean Donahoe: Well, it's not necessarily fake news, but he likes to
Phil Newton: He has done. Exactly, yes, that then seeds ...
Sean Donahoe: a lot of other controversy and stories around it.
Phil Newton: He's got a position on, so he's driving a narrative that would favor his position, because I remember recently he was, and when I say recently I mean in the last sort of 12 months, he was in the news for, and he got caught doing it, which is why it was even more in the news, which then drove the narrative that he was trying to manipulate in the first place, which was a weird twist of fate. But he was very short on a particular stock, and he was going onto the news saying how much he hated it. He was essentially ramping down the stock and encouraging people to hop on the bandwagon, and using his previous successful exploits to try and manipulate a crowd behavior that would help push the position even further in his favor and perhaps speed up what could have happened.
And he got caught with his trousers down, when it was obvious that that was the underlying reason why he was saying the things that he was saying. And they were borderline, I wouldn't say lies, but they were very ...
Sean Donahoe: We have to throw the word in here. Allegedly. Just
Phil Newton: Well, that's why I said that I wouldn't say that they were lies, but they were stretches of the truth. They were very loose and tenuous half-truths, if you like. They were, you see what I'm saying here? So he had a different narrative, and he was trying to manipulate the media to his advantage, because he had a narrative, an underlying reason for saying the things that he was saying. And that
Sean Donahoe: He's kind of known as the angry billionaire, that's his kind of shtick.
Phil Newton: Yeah, I mean, he just reeks of being a dick as far as I'm concerned. You know, why can't you be honest and say, "Hey, yeah, I've got this position. Here's the reasons why I'm doing it," and if people agree and people see it for what it's worth, then he wouldn't have had to go through all the hoop jumping to try and manipulate the situation. And again, because of it, he got caught with his trousers down and, alright, that one didn't work out, but there's been plenty of times where he's used the media to his own advantage. You know, and I just remember him getting caught out doing it. And it's not the first time it's happened. You know, people do it all the time.
Sean Donahoe: Yeah, indeed. And again, there's lots of other ...
Phil Newton: It's sad. I just shake my head about it. But I think the overarching reason is when you start seeing these things, and you just start, now that you're aware that this goes on, I think what we're always trying to do is raise your awareness. Now that you're aware that this goes on, you can start tagging on the question, say, "Okay, well, he's saying this. Why is he saying that?" That's all you've got to do. That's all. What's the motivation for it? You know, if you agree with that motivation then put the trade on. If you don't agree with that motivation, then don't put the trade on. But the fact that you're not reacting to, "Well, if he's doing it then I'm going to do it," and you jump on the bandwagon, you can just put that little circuit breaker in place to say, "Okay, well, what's the motivation here?" Now that I'm aware of this narrative in the markets with whatever stock or instrument that's going on, you can start to ask just one or two simple questions that would help you make an informed decision. And that's the important part here, as far as I'm concerned. That's the takeaway for me, when you're aware that, hey, fake news, it happens, but we can use it to our advantage.
My knee jerk reaction, as you know, Sean, is whatever they're talking about, do the opposite.
Sean Donahoe: Well, that's what we're going to talk about. What's the solution here? So one of the things we talk about a lot is trust and verify. I mean, big quote from the '80s and Ronald Reagan era, but investigate the sources. First of all, don't get all your news from one source. Get it from multiple sources and then look and dig for the original source of the information.
Phil Newton: The original hot sauce.
Sean Donahoe: Indeed. Tabasco, that's what
Phil Newton: Can we get a Terry Pratchett in here?
Sean Donahoe: Go ahead.
Phil Newton: I can't remember the name of the sauce, now I've said it. I've put myself on the spot here. I couldn't quite remember it. It was, "Can we get a Terry Pratchett in here?" It was the hot sauce, was it ...
Sean Donahoe: Wow-Wow Sauce.
Phil Newton: Yeah, the wizards were always going on about the Wow-Wow Sauce. It was. Yeah, so what's your Wow-Wow Sauce? call back to.
Sean Donahoe: So yeah, we like to see, hey, what report did it come from, who's the original quote from and all the rest of it. Is it based on an actual stock or an actual rumor or what is going on? What is actually driving it?
Phil Newton: Is it a genuine wow news or is there a narrative?
Sean Donahoe: Exactly.
Phil Newton: Yeah.
Sean Donahoe: I always look at disseminating the motivations of who's speaking and why and why it's being reported. What the angle is. And then obviously, just look at the real numbers, if it's charts or actual reports. But, as Phil kind of hinted to, one thing we do a lot is we've made the news, which we've talked about a lot. The public is the last to know anything, and will often be on the other side of a spike or a dip that is news driven, looking for a reversal. A return to normal activity. A recent example of that is the GM trade we did live a few weeks ago, and the Tesla trade from last week. Again, all news driven.
Phil Newton: And to be fair, a few months ago, even the Facebook, when the news about the ...
Sean Donahoe: Oh, yeah, the whole Cambridge Analytics bullshit?
Phil Newton: Yeah, before the earnings, but when that hit the headlines, we were talking about, "Well, it's really bullshit, and the reaction on the stock was a knee jerk reaction, because it was based on something that had happened three years ago." So the problem wasn't really a problem. It was people only thought there was a problem. And when they realized that, "Oh, it's already been dealt with," the stock reaction, it recovered. You know, and that's an example of the public are the last to know anything. But the reality was, this has been dealt with. You know, it wasn't going to impact, with hindsight, we can say the medium term, but we were talking about the long term at the time. And you know, in the long time, it's a good stock. There's nothing wrong with it.
And you know, obviously that's now, with new information, it has been impacted by the earnings, and they're also doing some housecleaning and they're taking a little knock on revenues. That's a rabbit hole that we can exit out of quite quickly. I think the point is is that, as you quite rightly said, Sean ... You need to change your name. You're all those S's. I'm just tongue tying myself. But it's something that we said, the news is representing to the general public. The general public is always the last to know. Why would you want to follow the herd? Why would you want to follow the crowd? The crowd are always going in the wrong direction, or if they are going in the right direction, it's a temporary direction. So what are, you know, when someone is waving over, it's like a magic act. If you think about a magician, they're making all this hype and pandemonium and waving their hands and shaking, and saying, "Look over here, look over here," but the real trick of it, the real trick of it is over there where you're not looking. It's that kind of distraction technique that magicians use to make a good act.
And the trick of it is not noticing that you've been distracted. That's what makes a good magician, is not knowing that you've been hoodwinked.
Sean Donahoe: That's exactly it.
Phil Newton: And all we're doing is , hey, there's a trick to this. It's shout, shout, shout, get their narrative, but all you've got to do is just pause, asking the question, what's going on? Typically, it's going to be whatever they're saying is probably the opposite.
Sean Donahoe: Yeah, looked at the other hand. But the other thing is, keep this in mind, guys, buy the rumor, sell the news. Trust and verify.
Phil Newton: The old cliché, but that's what we mean by that fact. That's what this phrase means. Just think the opposite. Knee jerk reaction, think the opposite. And then as you said, Sean, I think, verify.
Sean Donahoe: Yeah, I mean, the way, talking about the herd, I always use this analogy. If the wildebeest are all running down a valley towards a waterhole, I want to be the lion on the side, looking at the rocks, picking out the filet mignon.
Phil Newton: I think lemmings is probably another apt description, just to throw another one in there. You know, they're all going in the right direction, but there might be a cliff edge that they're all going off over.
Sean Donahoe: Exactly.
Phil Newton: I'd rather just pause and say, "Hey, I don't mind going in this direction with the crowd." What I want to know, is there a cliff edge? And that's what asking that question is. That's what trust but verify means. That's what, you know, just pause and ask a question, just what's the motivation here? And if you agree with it, there's nothing wrong with going with the herd, going with the crowd. There's nothing wrong with it, as long as it meets your usual strategy requirements.
Sean Donahoe: Yeah, as long as you're aware of your surroundings, that's the other thing.
Phil Newton: Exactly, yeah. I mean, just understand what's going on. That's what we mean. And this is how you raise your awareness. I think this has been a good eyeopener. I know we dig a little bit deeper on this and peel back the layers on this all the time, because, I mean, you mentioned a phrase, a common -ism is, what was it, buy the news, sell the rumor? It doesn't really matter which way round it is, it can be used both ways. But it's that phrase. Well, what does that mean?
I keep thinking back to the scene in Cocktail, the movie with Tom Cruise, and he's got that bar job and he gets asked for a cocktail and he gets asked, you know, "Can I have a martini?" He's like, "Well, what's in that?" He doesn't know what he doesn't know. It's just like, "Pour it out the bottle, dude. It's a martini, magic happens." You know, just be aware of what's now you know what's in the ingredients, you can pour the martini or you can make a cocktail. You know, you can self-select. Just raise your awareness.
Sean Donahoe: Absolutely, yeah. And buy the rumor, sell the news is the old adage, but again, just think about what you're doing, why you're doing it and everything else. But we move on to the shady cousin of fake news, which is pump and dump.
Phil Newton: With actual, real fake news. fake.
Sean Donahoe: Actual, real fake news. I like that.
Phil Newton: But it's the original fake news, the pump and dump. Everyone knows this one.
Sean Donahoe: Absolutely. And manipulation is often done by social media, email or good old fashioned snail mail. Mostly this happens in crypto and penny stuff.
Phil Newton: Well, let's go back. Let's be fair, none of these things are new. You can go back and get one of our favorite books, Sean. You know what I'm going to mention.
Sean Donahoe: I know, yep.
Phil Newton: Stock Operator. This pump, it's not mentioned as pump and dump, 'cause these phrases, they've picked up a phrase over the time, as they've become popular and recognized as manipulation or whatever, but if you go back, I mean, these practices have been around for a hundred years, and again, it's talked about in Reminiscence of a Stock Operator, and he talks about a pump and dump type scam. And it's quite an interesting read. It's well worth it. It's going to be the best $15. It's such an education, it's such an eyeopener. And all the things that we're talking about, every week, there's lessons to be learned. You should read it two or three times a year, because at various stages of your trading career, you're going to pick up some of these lessons, and this is one of the lessons that's in that book, that's described. You know, virtually the pump and dump.
There's actually two examples of it. There's one where he is actually the instigator of a pump and dump, because it was legal back in sort of 1905. You could do this legally. And he was hired to go and actually create a market in the stock that he was asked to create some activity, so that they could offload some shares, 'cause it was a dead stock, and he was asked to go and create this, you know, pump and dump type situation.
Sean Donahoe: Yeah, absolutely. And again, thinking back to now.
Phil Newton: Sorry, got off the beaten track a bit there, Sean. I'm a little bit excitable today. I've had a couple of coffees again before our show, and I've just realized I'm a little bit more hyper than usual. I mean, I feel like that, what's the kid off the character with Gru, with the cartoon? The Minions are in this.
Sean Donahoe: Yeah?
Phil Newton: I feel like I'm at the fairground and the little girl just got the teddy unicorn. "It's a unicorn!"
Sean Donahoe: "It's so fluffy!" Dear me. Okay. I apologize.
Phil Newton: Anyway, pump and dumps. Honestly, I'm like this in real life, guys.
Sean Donahoe: Yes, he is. I'm not making any excuses for him.
Phil Newton: You know what, why am I? Why am I? Anyway, Sean. I've derailed you. Let's get back on track. Pump and dumps, even, shady news, let's go.
Sean Donahoe: That's what she said. Okay, so anyway.
Phil Newton: Ooer, vicar.
Sean Donahoe: Indeed. So this is more of the realm of crypto and penny stock world, where the average trader is what we would call, politely referred to as less sophisticated. So basically what happens in a pump and dump, traditionally, is a pump happens when everyone buys into a vehicle that's been hyped up, either via some sort of message, email, snail mail, newsletter, you know, they may be part of a syndicate on social media. Well, what happens is everyone buys into this vehicle, based on all the hype, and the prices and volumes spike. And when it reaches its zenith, the investors are committed to it. That's when the promoters dump their shares that they've been holding onto, wanting to raise the value on. What happens then is ...
Phil Newton: Funnily enough, Sean, it's when it hits the mainstream and the general public become aware of, "oh, look at this new shiny opportunity," it's only going up. Then that's when, surprise, surprise, the people with the big ...
Sean Donahoe: Existing positions.
Phil Newton: Yeah, interests. Interest in existing positions, they're offloading, because its hit the news, the media. This is also an example of the fake news, do the opposite, because of this . It happens at the illiquid stocks, penny stocks, cryptos. You know, it's the same principle that goes on. When it hits the mainstream and people become more interested and the prices spike, that's when the people with the big positions who started this hypey interest are unloading their positions, because that's what we meant earlier by the herd.
The herd is piling into this, and in this case, there's a cliff edge and the big position size and the instigators of this are the cliff edge. They're on the other side of the positioning, giving it out to the general public piecemeal, you know, a bit here, a bit there. They've got no position, and when there's oversupply, no demand, it's the cliff edge. You know, that's what happens.
And you'll see it a couple of times a week. It does happen on a regular basis.
Sean Donahoe: Yeah.
Phil Newton: The other yeah.
Sean Donahoe: Yeah, I was going to say, the best way to avoid it is, first of all, avoid stocks that are rapidly spiking in those particular ...
Phil Newton: Yeah. This is one argument why we look for the most liquid shares. It happens in illiquid instruments. What we mean by that is just instruments that have lower trading volume. So for example, we deal with the most liquid stocks. I think we've got a list of stocks that we like to give out from time to time. They'll be in the show notes, no doubt?
Sean Donahoe: Yep.
Phil Newton: But yeah, we've got a list of stocks for one of these reasons. We want to be able to get in and out of positions at sensible prices, so we can avoid this type of manipulation. So we have the most liquid stocks that are tradable, and we avoid this pump and dump situation, 'cause we can get the price that we want when we want it, at any time we want it. I've got to add, most of the time, because, hey, there's situations where you just can't do what you want to do, sometimes.
Sean Donahoe: Absolutely. Now, nimble traders can profit, but you have to be very fast and flexible and it's not for the faint of heart. Like fake news, I I've traded some of these moves, and the first thing to realize is that there's a pump and dump going on, and knowing that, wait to strike on the same side as the promoters, not the crowd. Wait for the rollover, and sure, like I say, not for the faint of heart, because if you blink, boom, you're done, you missed it and you're dead in the water. We don't want to be in those scenarios.
But again, what I've seen in certain industries like, yeah, when I was invested, I would occasionally see someone, or there are even syndicates that exist for the sole purpose of having people pump and dump, so that everyone will ramp up the price, and then when they see that, "Hey, we're telling everyone to pump this one, but you can be in our syndicate of promoters that get on the other side, and we'll tell you when to start selling off before the rest of the market goes." Again, you can be on the right side, but those syndicates exist with a pure intent of manipulating the markets. Specifically, right now, crypto. That's one of the biggest markets for that, because again, less regulation, less sophisticate traders, a lot of hype.
And you can see, you want to talk about pump and dump, I mean, if you look at through 2017 into Christmas of 2017, that was one of the biggest hype trades and bubbles, but really, that's one of the biggest, most elaborate pump and dumps out there. I mean, while it was a bubble, you could also it was also a pump and dump, because the news media, everyone was hyping bitcoin and cryptocurrencies and everything else into that bubble. That's really a pump situation, until it got to a point where like we did a show before Christmas and said, "Hey, Donald Duck prediction, this is where the whales are going to dump theirs, now that the futures markets are coming in and everything else. It's a good time to get rid of it and start, you know, position before they dump."
Phil Newton: Profiting, yeah.
Sean Donahoe:
Phil Newton: I suppose that's a good example of the type of situation that happens. So you'll see that situation. I mean, with bitcoin, it happened over many, many months, but the pump and dump, it usually happens two or three days, two or three weeks.
Sean Donahoe: Mm-hmm (affirmative), yeah, very short term. But just to kind of look at ...
Phil Newton: Yeah, just trying to but it's the same principle behind what happened with the cryptos, it was just such a, I mean, because it happened over such a large price movement, over such a large period of time, it gets the definition bubble, but essentially it's the same thing going on.
Sean Donahoe: Same phenomena that you can study in terms of its movement.
Phil Newton: Yeah.
Sean Donahoe: That's the light I was shining there. But, let's also move onto another one that Jesse Livermore was, let's just say, involved with in a few different ways, is layering, as it's called, or painting the tape, or spoofing the tape. It's all got all sort of different ... But basically, this is a sneaky trade. This is a little sneaky tactic, should I say, and it is a sophisticated short term play, but basically, sophisticated short term investors place orders in the market with no intention of actually having them filled.
What happens is there are traders and investors who are looking for large block orders. In other words, on the table, a lot of buys or a lot of sells at a certain price, and when other investors who are watching the tape think that a whale is trying to lock in a buyer or a seller at a certain price, then they jump in, and these dupes try and ride the coattails and place their orders at the same price. And then right as the price is about to hit that kind of bid, or the ask, boom, that big block order vanishes, and the dupes orders are filled. And then the market reacts accordingly, based on all that sudden volume and activity, and losses for anyone who's been duped.
So I know Jesse Livermore was one for talking about this as well, someone.
Phil Newton: Talking about the tape and how to spot it, the modern way of dealing with this, because to be fair, I actually used to not use this, but I used to look for this activity to help support when I was day trading, because I was looking for that activity to support, say, a breakout, for example.
Sean Donahoe: Yeah, this is something that is really short term trading, so I just want to kind of layer it.
Phil Newton: Yeah, I mean, you'll see it on the tape. You know, if you've got, I just want to point out, this is if you've got time to sit and watch a position. If you want to be a little bit more active and you want to maybe scalp an entry, which I've done from time to time, then this is a good way to kind of validate the move, if you like. So what you're talking about is when there's no validation of a breakout. You know, the price will move based on, "Oh, there's big orders." Maybe the little guy gets in because they're misreading the tape or level two or the raw data feed, if you like, and then the order flow disappears, or the big block order disappears, and so that's what the spoofing element is.
So how to use that to your advantage is to not necessarily look for the block orders, but when you're looking for the breakout is you want to start looking for the higher volume orders. So not the Johnny One Lots, if you're on futures, or the 100 shares or anything up to about 300 to 500 shares. When you start seeing blocks of 500, 1000, 2000, 5000 shares go through on a breakout, and with momentum. What I mean by momentum, it's just the speed of order flow. So if you watch the raw data feed, the time and sales, what you'll see is you'll see the orders go through, I always describe it's like the song Paula Abdul talks about. You know, it's one step forward, two steps back.
And what you want to see is two steps forward, one step back, but then the speed of the order flow, and that's something we've talk about in the past is when you've got the order flow going in, you know, order, order, order, and then there's no activity on the tape, that means that no-one's buying and selling, there's no activity. It's very slow, and you'll see that on the time and sales. But when you start to see the order flow speed up and speed up and speed up, it will literally go, you know, if you imagine like a heart rate, if you're at a sitting and resting rate, your heartbeat is just at the regular pulse rate. You know, a slow pulse rate, 'cause you're not doing any activity.
But when you build up pace, build up steam, and this is what momentum is, and this is what a momentum breakout is, is when you start seeing price move past a particular level that you're watching as a place to get in a trade and then you see the time and sales, the speed of the order flow start to pick up, to pick up, to pick up. And it's all on one side. And you'll be able to see whether it's a buy order initiated the position or a sell order that initiated the position, and you'll be able to see, for example, if it's a bullish breakout, you'll see buy, buy, buy, and then you'll see the speed of those transactions go through, buy, buy, buy, buy, buy, buy.
It looks like your heart rate would pick up, and they would be consistently there, like they're picking up and they're starting to run. But what you don't want to see is that buy, buy, buy and then it stops. And the momentum disappears. So just trying to describe how to see if it's being layered on, as you said, if it's being spoofed or there's actually some genuine movements. And again, this is really just for exceptionally short term trade, but if you've got the time, it can really make the difference between hitting the ground running and you sacrifice that initial perfect entry for, you know, a very tight risk. And you can get a larger position size because of it, because you're hitting the ground running with the momentum.
It's like jumping into the trade as, you know, imagine jumping onto the winning horse in a race as it's at full gallop and a nose ahead of the rest of the horses. That's what you're doing with this kind of reading the tape phenomenon.
Sean Donahoe: Yeah, absolutely. I mean, it's really a short term trade pitfall, and the easiest way to avoid it.
Phil Newton: It's a you won't pick it up overnight. I'm not going to Billy bullshit you. You won't pick it up overnight, but if you're interested, you know, by all means, shoot us an email, [email protected] We can have a conversation about it. But certainly just start by putting the time and sales on and look at when prices at levels that you're interested in, and then look at what's happening with time and sales, 'cause that's how I taught myself. And it's just that phenomenon that we've described. You'll be able to see what's happening in a very short term level, as to whether you want to get involved or not.
Sean Donahoe: Absolutely. I mean, I love watching the time and sales. I love watching the tape, you know, the modern version of it, and seeing sentiment shifting faster than a hare on crack. You know, it's a difficult way to trade. You have to be really
Phil Newton: If you've got the time, it's worth it, particularly if you're going to use day trading or very short term trading. It's well worth it. If you've not got time, don't worry about it. You know, you don't need to , I mean, I don't bother these days. You don't need to finesse your entry in that way, with the style of trading that we use, but if you want to be a little bit more active, it's certainly a string to the bow. It's an extra skill set that you can learn. And something we've talked about in the past, you can use it to trade around positions, which makes it quite interesting.
Sean Donahoe: Absolutely. Now, again, both of us have day traded. Phil way more than I have, I just didn't have the bloody patience for it.
Phil Newton: 12 years a day trader.
Sean Donahoe: Yeah.
Phil Newton: I might know a trick or two.
Sean Donahoe: Absolutely. But when you get used to seeing spoofing happen and what it can look like, I mean, you can be on the actual side of the spoofer, and again, if you're seeing these things going in, there are opportunities like Phil was kind of outlining there.
Phil Newton: You'll see patterns and behavior, and I think, I mean, charting for me, it's a visual way of recognizing human behavior and crowd psychology. It's very interesting. When you think about it in that context, 'cause every time an order goes through, that's someone, that's a person who's clicked their finger on the mouse. Alright, I know that there's computers that do it a lot these days, but someone's programmed that. That's human behavior responding to something. And when you see a lot of people taking activity all at the same time, very fast, very, "I've got to be a part of this!" And they're all going in the same direction, that's a good time to follow the crowd. That means that it's okay to go with the flow, because you've got a data driven decision to follow.
Sean Donahoe: No, it's not just what everyone's doing.
Phil Newton: the news, "Look at me, follow me! I know the way!" That would be like going back to World War One trenches and, "Over the top, boys! Follow me!" Bang bang bang bang bang, you know? Alright, it's a dramatic example, but that's what the news herd is doing. They're over the top, out the trenches, and they're being shot to pieces. Lemmings off the end of a cliff. But this is price and data driven decision making, because the evidence is in front of you. Everyone and his dog is clicking the buy button. That's momentum. And if they're all in the same direction, you've got a sea of green on the tape, and it supports the decisions, the technical analysis and the decisions that you want to participate in. It's just another confirmation that, yeah, maybe not just today's the right time, but right this moment is the best time for me to put my order on to really jump on that horse as it's running and it's on its way to first place.
Alright, there's no guarantee of what happens in five days time, but just that moment, it'll just give you position a bit of a kickstart.
Sean Donahoe: Absolutely. So, moving on, I'm going to jump to another one which is relatively well known but highly illegal. Doesn't mean it doesn't happen. It's a little trickier, it's called wash trading. Now, like I said, it's been illegal since 1936, but it's when a big player buys and sells the same stock continually, almost instantly, at and around the same price. Now, it's a sneaky way to boost volume activity, and here's the thing. Modern day, again, because it is highly illegal, doesn't mean it doesn't happen, you just don't have to get caught, but it's usually done through multiple brokers or even dark to master the source, because of that illegality.
But the way I look at this is, if you're going shark fishing, chum the water. And what this does.
Phil Newton: Chum the water, nice.
Sean Donahoe: It truly chums the water, trying to attract other investors or traders to take a bite. And usually what happens is this is kind of like it boosts volume, all of a sudden, which again, if you're watching the tape, a lot of people also watch volume.
Phil Newton: See, you'll get the activity, but it won't be in one direction. So you'll perhaps see several buy orders, several sell orders, because they're chumming the water. So the price doesn't go anywhere, but activities increasing. So compared to what I was just describing, you're going to see the activity going in one direction, the volume going up, the trading activity getting higher and higher and higher in a bullish move, for example, and the order size is going to increase.
Phil Newton: So you're going to see it all in one direction, whereas what you're talking about here with the wash trading, it's the same principle that's going on, but the orders, the price level is staying the same. There's no effective major movements, and you'll see orders on both sides of the buy side and the sell side, so it's that chumming. It's going up and down. One step forward, one step back, to do the Paula Abdul song. And we're looking for two steps forward, one step back. Two steps forward, one step back, with the speed of order flow and the majority of the orders on the side, the direction that you want to be involved in, and this is the exact opposite.
Sean Donahoe: Yeah. Now, the thing here is that this also used to be a tax manipulation strategy, but the IRS bars taxpayers from deducting losses from the results of wash trading, obviously, because it's illegal and everything else, if they can prove. However, the point that this is actually, or would be, most advantageous, is imagine if you're at a point of support or resistance, and you want to amplify a kickback. If you place, you know, a lot of volume, suddenly spiking at what would be a logical stopping point, or we call them logical stopping points or a point of interest, to avoid the buyers. But if it's what traditionally would be a support or resistance, you can give the impression that turn is on the cards by creating that chumming of the waters so that any kickback is kind of more aggressive or combined with other things that maybe there's a breakout and that the turn around isn't real, and then again, chum the waters based on that again.
You know, high frequency trading, as well as being under the microscope for this, because if you think about this, these guys can do tens of thousands of trades per second, and it's not unusual to mask a little bit of under the radar wash trading in amongst that. I mean, you have to be a serious forensic analysis to see, okay, what's going on there and are these algorithms or high frequency traders washing trades right there in amongst all of that activity that may just avoid initial interest and attention. And that's one of the things, so again, bringing it back, one of the markets that is highly susceptible to this right now, because it's not as regulated, is crypto. Crypto is prime for a lot of these manipulations. I put that in quotes.
Phil Newton: Just to draw a distinction, we're talking about the trading activity around it, not the technology that supports it, because we've been very clear in the past that, hey, there's a lot of nonsense goes around crypto at the moment, and all these activities you'll see going on there at the moment, it's like a modern day penny stock as far as I'm concerned. The technology that supports it is going to be fantastic. I've no doubt we'll be using some sort of digital currency in the future, but it's just, in its current iteration, it's such an immature market. It really is, and we're seeing all the usual bullshit that goes along with an immature, brand new, unregulated market.
Sean Donahoe: Absolutely. It's very and ripe for manipulation, and that's the whole point. So again, this is really aimed at short term traders, not really affecting long term traders, or longer term traders, like us. We tend to be more aware of what's going on. We look for confirmation of moves. So again, chumming the waters doesn't really affect us. We're not that way inclined. We look to see, "Okay, sign, confirmation then action," but we, again, trust and verify along the lines as well. I mean, do you agree with that Phil?
Phil Newton: Absolutely.
Sean Donahoe: Okay, cool. So the last one that we're going to talk about here today, I mean, it's big, it's bad, it's grizzly.
Phil Newton: And no, we're not talking about a portrait painting of you
Sean Donahoe:
Phil Newton: Power pose.
Sean Donahoe: Absolutely. You know, paint me like a French girl.
Phil Newton: Just because you look like a man that's swallowed a bear with the tail hanging out of his mouth does not mean that you are a bear.
Sean Donahoe: Indeed, Phil, yes. The thing under my chin is getting longer, but that's by design. So anyway, this is a titan player move, and larger short sellers do this.
Phil Newton: It was the Carl Icahn fellow, wasn't it? He was trying to do this and use the news to support his trading decision which ultimately failed. He was looking at raiding it, he had large positions, and taking a big bear raid titan position and he got kicked in the arse, 'cause he got caught doing it.
Sean Donahoe: Yeah, basically. But basically, they placed large sell orders to drive the price down. And as the price dips harder, I mean, you have to have a serious amount of cash
Phil Newton: Lots of money involved in this. If you're one person doing it, typically you're trying to manipulate liquid stocks, doing this. So whereas we've spoke about the pump and dump, it's illiquid penny stocks, your average Joe Shmoe can kind of do it with a sizeable chunk of change. Bear raiding, we're talking about usually these are liquid stocks, and they're trying to manipulate a movement, just by sheer force of will and the position size.
Sean Donahoe: And again, it's usually backed up by lots of fake news stories being seeded in advance or in and around it. the time.
Phil Newton: Yeah, maybe just the decision.
Sean Donahoe: So basically tries to create that knee jerk reaction, but of course, as the prices dip, your stop losses are hit. This causes a cascade effect and the selling continues harder and faster. I mean, it is a pretty
Phil Newton: nasty trick. That's usually the motivation for this. They're trying to push price to what we refer to as a logical stopping point, which is when most people are going to have either orders to get out of a position and orders to get in a position, because, hey, maybe things have tipped over to such a point where the algos are going to come into play and put orders on automatically. So they're trying to push the price down to that point. They've got the big position on, they're loading up the boats, and then they're kind of manipulating and push and bully the market down to these levels, or up to these levels, for that matter. It can happen on the other side. But when it gets to those points and those stops are triggered, like with the news reason, you know, everyone's kind of jumping like lemons out of their positions to say, "Well, okay, my stocks have been hit," that creates money flow on the opposite side, and that's when these guys are on the other side of the position, 'cause they're using that extra selling pressure, that cascade effect to start unwinding their position.
And then if the news can kind of help trigger that activity, that means that get maybe several days grace to unwind what is promptly a very large position. And that's typical of what's going on. Not surprisingly, Sean, this is actually talk about on the bull side, the phenomenon, in Reminiscence of a Stock Operator. So the same principle, but it's just on the other side as opposed to on the bear side.
Sean Donahoe: Absolutely.
Phil Newton: Bull raiding doesn't quite have the same impact as a bear raid.
Sean Donahoe: Yeah, I could do a variant on that.
Phil Newton: It happens on both sides of the market, is all we're trying to say. Again, it's just using a lot of funds to push them, bully the market. You used to see it a lot in currencies, surprisingly. You've got big banks, institutions, and it also happens in the even shorter term when you've got big institutional players are looking for an average price. And it will also get referred to as stock running sometimes, where they're manipulating price down or up to certain levels, 'cause all the institution want is an average price for their, what would be, huge position. You know, because they've got multi-millions to play with to probably get a position. If you think about a pension fund, they've got several million all in one stock, for example. You don't just put that position on straight away. So they want an average price.
So they're going to push price around, they're going to accumulate stocks. So they're going to drive price up, drive price down, they're going to hit the stops, both side, bull side, their side, bull's. They're going to yo-yo it back and forth, and all they're looking for is an average price, and it's the same principle, just on a slightly shorter term scale, so that they can eventually gobble up all the stock that they can, an average price that is acceptable for their clients.
Sean Donahoe: There you go, that's exactly it. And again, think smarter. This is the solution for this one. Think smarter, smell the air. there you go.
Phil Newton: Trade options, trade options! Don't worry about them! Don't worry about the yo-yo, just get your position on, sit back, put the smoking jacket on, or the vape jacket on these days, feet up, read the paper, or your digital paper. You know, all these phrases, we've got to modernize them. Get your vape out and your Kindle and your smoking slippers. You can't do any of these things anymore, can you? Get your healthy milkshake drinking jacket on.
Sean Donahoe: Get your Birkenstock sandals on, yeah.
Phil Newton: Get your juice drinking jacket on, just prior to going to a healthy ... Anyway. But you want to sit back, feet up, not worry about any of the shit that goes on with the markets, the manipulation, the price pushing, the yo-yoing back and forth. You know, if your viewpoint is right, for example, if you're in an uptrend and you're buying the dip in an uptrend, there's a good chance that the trend will probably continue. So why worry about what's happening on a micro level, on a minute by minute basis? On even a day by day basis? Just put the trade on, give yourself enough time for your viewpoint to play out and just check in once a day. And you can avoid the headaches that we've just talked about, the dirty tricks, the manipulation, 'cause to be fair, most of my positions, they're not right on day one. They might take a couple of days to become right. They might be initially wrong. Typically, you might be stopped out. Traditionally, if you're buying or selling stock.
But if you've got a stock option on as an alternative to using stock or spread bets or Forex or CFDs or whatever the thing is, you know, you can use a stock option or an ETF option these days as an alternative to the traditional way of short term swing trading. And you don't have to worry about any of the bollocks that goes on with just . You can sit back, feet up, pipe smoking. I think I've got to add, metaphorically speaking, whatever your method of relaxing is, and not worry about all the shenanigans and all the dirty little tricks that go on in the market that give you those heart palpitations and the frustrations and they, "Oh, will I be stopped out or should I move my stop?" All those emotional headaches as a retail trader that you experience. It's your money that you're playing with.
Sean Donahoe:
Phil Newton: So the easiest way to do it is get rid of the headache. The easiest way to do that, reduce your position size, use stock options, which makes better use of the money that you've got available, and have, again, we're always assuming that you've got a logical and systematic approach to find, filter and sort stocks and profit from the markets. We're always assuming that. If you need help with that, that's what we can help you with, but if you've got, again, just reduce your position size. Move over to stock options as an alternative to the more traditional way, and then you also open up awesome, fancy, wonderful strategies that we can talk about in the future, but that's how you just avoid all this nonsense.
Sean Donahoe: Absolutely. So I mean, in specific relation to the bear raid, if it smells like a bear raid, feels like a bear raid, if it growls like a bear raid, probably is a bear raid. Position yourself accordingly. And the same with all of these things is you can avoid them altogether just by
Phil Newton: Yeah. It might be temporary, and if you've got a bullish call and you for some reason get involved in a sudden downdraft in that stock or instrument or market that you're trading, and you know, it might just be temporary. I mean, it's happened to me plenty of times. You don't have to worry about it, because what's the worst that could happen? With a stock option, just like a deposit, what's the worst that could happen? You're going to lose your deposit. The risk is fixed, and you don't have to panic and jump out the position. You know, you can give it the time that you thought that your position would play out, and it's probably going to turn around. You know, if it's a bear raid or its a little bit of yo-yoing back and forth while an institutional trader gets their position on before the real move happens, you can just sit through that. It's of no consequence to you, because until you're proved wrong then the viewpoint is probably going to unfold. Sometimes it takes a little bit longer for that viewpoint to unfold.
Sean Donahoe: Absolutely. And that leads nicely into our ...
Phil Newton: We've got a little tip of the week, yeah. We've got a little tip of the week in there.
Sean Donahoe: Well, it actually leads right into our Rebel Trader tip of the week. So let's cover that.
Phil Newton: Oh, does it now?
Automated: And now it's time for the Rebel Trader tip of the week, brought to you by Ready to take your trading game to the next level? Discover where smarter traders come to get coached by the best, and learning to trade just got way easier. Trade Canyon, smarter traders live here.
Sean Donahoe: Okay, so the Rebel Trader tip of the week. Kind of touched on or start by Mr Newton here.
Phil Newton: I got ahead of myself, Sean. I didn't realize.
Sean Donahoe: Well, you're actually leading in perfectly, is plan ahead and cement why you are in a trade. Here's the thing. All investors are sometimes, and traders, are sometimes tempted to quickly change their relationship status with their positions on a whim. Maybe they feel that they're being whipsawed by something happening in the market.
Phil Newton: That's okay for Facebook. Changing your relationship status is okay for Facebook, it's not okay for your positions. You don't want to change your positions, your viewpoints, every five minutes.
Sean Donahoe: Absolutely.
Phil Newton: Sorry, Sean, I've kind of stole your thunder, but with new information, it's okay to change your opinion. But just because you're crapping it over your position size is too big, or you're not sure, you can eliminate all of that with some smart adjustments of your strategy.
Sean Donahoe: Absolutely. Making split second decisions can lead to the classic investing ...
Phil Newton: Heart attack sports.
Sean Donahoe: Well, yeah, it can also lead to the classic investing mistake, which is buying high and selling low, which we don't want to do.
Phil Newton: We've all done it. To be fair, and sad to say, just because we spoke about it earlier, we saw that very recently with bitcoin before, the Christmas, where are we? 2017, just to date the phenomenon. We saw bitcoin all time highs, and then early in the year, 2018, we saw that kind of going the other way. So it's that same phenomenon. People were buying high, and we saw it in the media, to kind of tie up everything that we've just talked about, we saw it in the media. You know, it was buy, buy, buy. The people who should not be talking about this were saying, you couldn't go to a coffee shop and not over here the barista saying, "Have you bought bitcoin yet?" Really?
Okay, people who should not be talking about it were commenting on it and making advice, and we saw that with the media. And that's the time to get out. And we saw that phenomenon of buying high and selling low, and it did, if we look at the prices now, it's been a major correction. That's the bubble bursting, and we don't want to be on that experience. And it's just a horrible place to be, but we've all done that at big levels and small levels where we've just bought at high of the move, and at low of the move, and again, another way to avoid that is to, well, if you do buy at the high of the move, but your viewpoint is still correct, and your viewpoint has not changed, why stop yourself out? Why close the position?
You're only going to have to reenter the position, assuming that that is in your strategy, or you can use an alternative method to buy a stock option as an alternative to buying stock or selling short stock, and if you happened to have mistimed the entry, meh, what's the worst that could happen? You'd lose your deposit, but then you've also still got however much time that you've bought with that stock option, I default to 45 days. You've got 45 days to see if that position unfolds in the correct way, based on your viewpoint.
So there's no need to close the position and panic and have that knee jerk reaction that you were just telling me about, Sean. If you're initially wrong on that timing, it's okay. You've got 45 days to figure it out, and the worst that could happen is you'd lose your deposit.
Sean Donahoe: Absolutely. So again, keep that in mind. Again, stop changing your relationship status so often based on what's happening on a whim. So with that being said, let's rock on.
Automated: If you've got questions, they've got answers. Sean and Phil dive into the virtual mail bag for this weeks Rebel Traders quickfire round.
Sean Donahoe: Okay, diving into the Rebel Traders mailbag, I've got one here for you, Phil. If you only had to recommend one book, for technical analysis, and I have to say
Phil Newton: I know, yeah,
Sean Donahoe: And before you're going to say Reminiscences of a Stock Operator, which I know
Phil Newton: We've already spoken about that today, I think, haven't we?
Sean Donahoe: Yeah, but if there was only one book on technical matters, 'cause we always say, "Hey, you don't need to read loads of them, you only need to read one," which one would you recommend?
Phil Newton: It's a tough one. I think it's not going to be a popular choice, but I think A to Z of Technical Analysis, and think about it like a reference guide as opposed to a How To type book. It's got lots of tools and indicators and patterns and it will serve as a primer for you, that if you want to, "Oh, what's the CCI thing that Joe Shmoe was talking about?" You can just flip to that section of the book and get an overview of how it's calculated, which we don't really need to know these days, but there'll be kind of common interpretations of what you do with it. I think it's a good reference guide, just to have on your desk, if all this technical analysis is new for you. If you're going to look for something else, most of them are as good as any other. The traditional interpretations don't change, because they're traditional interpretations, but you know, I think the A to Z of Technical Analysis, you'll have every common indicator, and there's hundreds of common patterns and indicators, and then that'll give you a nice little overview of, "Okay, well, what am I drawn to?"
Because like, I mean, my first book, as I look round on the shelf, was Jack Schwager on futures. Doesn't really matter, but it was a big thousand page volume, tome volume of technical analysis, and again, for the same reason, it was a good primer. Again, one is as good as the next one, so it doesn't really matter, but it was a thousand page book on patterns and technical analysis. And what it allowed me to do is to say, "Okay, well, what things interest me? What is the thing that I am drawn to?" 'cause at the time, I was hand drawing charts, but do I want to be sat with a calculator working out Mac D? No. Do I want to be looking at fundamental reports and do the fundamental thing? No.
Well, what am I drawn to, out of all the things that I'm now aware of, there's that word again, with technical analysis? Well, actually, these patterns kind of interest me, the geometric shapes. That was what I was drawn to. So I made the decision based on the reading of that book and one or two others at the time to, "Okay, well, I'm not going to worry so much about the indicator side. I'm not going to worry about the fundamentals side, but I am going to start focusing on the geometric patterns, 'cause that's what I was drawn to." So that's what reading a book, a large book with a little bit of everything, allowed me to do, to make that decision, what's going to work for me. And that is, that's what's often referred to as figuring out your personality as a trader, or your trading style, and all it really is a reference to is the things that interest you as a trader.
I don't want to dick around with complicated algorithms. That's great for you, Sean, because you're more technically minded. You're also a coder. That's not a skill that I have, and I've got no interest in learning, if we're going to be honest. So having that, or trying to develop a mathematically algorithmic strategy is not a choice for me. I've also got zero interest in doing it. So it comes back to, because of the objective that you might have for trading, having a technical analysis book that just has a little bit of everything, it might be one of the bigger ones, it might be a thousand page book, but it just helps you figure out, "Okay, well, which direction am I going to go in?"
And think about it, as opposed to teaching you a how to strategy, it's going to help point you into a direction that might suggest, "Okay, I should focus my attentions in this direction," as opposed to the other direction, and it'll help you develop that personality as a trader. And again, all it is is a list of things that you're interested in when it comes to trading. Again, I'm going to be a bit soap boxy here, Sean, because I think it's very relevant to which book. It's a little bit whimsical, and I'd be doing you a disservice if I said go and buy this book, but by having something that gives you a little bit of everything, you've got to be able to make that decision, but then you've got to think about, "Okay, well, what's the end goal of mine? How do I see myself trading?"
And we've spoke about this at length in the past, so I'll try and be brief. And yes, please note that. I'll try and be brief. But how do you want to trade? I wanted to day trade when I started out. I wanted to be in front of the charts. I wanted to be on low timeframes, and I developed strategies around that. Now my objective is I want to spend as little time doing it whilst getting the most amount of rewards for the act of trading. It takes me 20 to 30 minutes to find, filter and sort something to trade every day, and then I can go and put the trade on, update my spreadsheet and walk away. The whole thing takes me 20 to 30 minutes. That's it. That's how I envisage my trading day. And then because of that end objective, the how I'm doing to deploy and live my life around trading, note how I said that, I'm going to figure out the steps I need to take to get there.
And the first step on that journey is figuring out what tools are available to you. So you want a good book. It doesn't really matter which one. If you like the cover, go and buy it, but make sure it's got a little bit of everything, and that's why I'm suggesting the A to Z of Technical Analysis. It's a good primer for you to then start investigating the things that you do like. And maybe you do want to go down the mathematical, algorithmic, coding type direction. Well, if that's the case, then, then you can start looking for a primer on that, and see if it's something you want to use as stepping stones to get you to your end objective. So does that make sense, Sean? I'm sorry, it's a very long answer, but I think it's very important. It's not just a simple case of go and buy this book. I think you've got to have the end objective in mind so that you can get the tools and the resources to support that objective.
Sean Donahoe: Yeah, and if you heard any noise in the background, I was actually reaching up to my shelf to get that book. It's by Steven B Achelis. I hope I'm saying his name right. But even still, it is a good general book with a lot of different things.
Phil Newton: It's a good primer. There's nothing fancy. It literally is an A to Z. And to be fair, and some of these are quite expensive these books. These days we've got the internet. Back in the nineties, we didn't have that. So it wasn't as prevalent, the information available. You can go to some free resources if you're literally starting your journey and you're wondering if it's going to be a waste of $60, because they are not inexpensive, these books.
Sean Donahoe: Yeah, that one's $30, reference.
Phil Newton: Yeah, and I mean, that's only a slim volume, to be fair, but I think the Jack Shwager, I think it was $60 in the nineties.
Sean Donahoe: Yeah, it's still bloody expensive.
Phil Newton: Even by today's standards, for a book, it's expensive. But you can go to stock charts, you can pretty much, Investipedia is kind of like an A to Z type website. You can go to some of these resources and you can get that primer that will help you figure out, "Well, what's my objective? And which direction should I investigate further?"
Sean Donahoe: Yeah.
Phil Newton: And if you've still got questions, [email protected] If you've got a question, send it in.
Sean Donahoe: Absolutely.
Phil Newton: I'm looking for that little jingle that comes through, "You've got mail!"
Sean Donahoe: We'll have that for next week. But yeah, the other book that I was just reaching behind me and one of the ones I started off with was Technical Analysis of the Financial Markets is one that I refer to now and then. I think it was written in '99 by John J Murphy.
Phil Newton: I think my first one was Ben Graeme, the fundamental.
Sean Donahoe: Benjamin Graeme, yeah, yeah, yeah. That's good. What was it? The Investors' ...
Phil Newton: Arts.
Sean Donahoe: I'm trying to see it on my shelf here. I know I've got it. The name escapes me, but it's actually Benjamin Graeme's main one that Warren Buffett refers to as well.
Phil Newton: I'm just thinking for ...
Sean Donahoe: The Intelligent Investor.
Phil Newton: That's the one, yeah. I'm just looking at mine and comparing it to yours, Sean. I'm just looking at my bookshelf, and I'm thinking, 'cause I'm more visual, I'm not coding orientated, but if you want to go down the writing indicator road, to serve as a primer, 'cause I felt it was very good, but for me it was coding heavy, but if that's the direction that you want to go down, maybe The New Science of Technical Analysis by DeMark, is his name. I think it's Tom DeMark. And that's a good book if you want to go down the, "I want to write an algorithm," like a mathematical formula to help me support my decision making. So if you want to go down that road, there's a good primer in there that will help you with a more mechanical and code driven methodology.
Sean Donahoe: Actually, I've got that one as well. That is on my shelf.
Phil Newton: I think I suggested it to you a few years ago now.
Sean Donahoe: I think you, did, yeah.
Phil Newton: It was a good book, but it's actually a good book even if you're not ... The first couple of chapters are great for the poor farm boys in the room like me, and then the rest of the book is great for people like you, Sean, who have got a more code savvy mindset.
Sean Donahoe: Absolutely. You're just being polite and taking notes, yes.
Phil Newton: To be fair, Sean, I'd love to. It's just not a skill I have. But I appreciate it. I've just got no interest in it myself. I'm not trying to be disrespectful. I'm just too far gone. I just can't be bothered, to be honest. I'm a lazy trader.
Sean Donahoe: I actually, you know me, I love setting up algorithms and HFD, so it's all good. What's the next question in the mailbag, sir?
Phil Newton: I kind of forgot. I did the angry cat thing and just pushed them all off the table. The next question, let me just rustle round and get that. So the next question, "So you guys keep hitting the finance media for their bias. What is a reliable source of news."
Sean Donahoe: Oh, my God.
Phil Newton: I can answer this question in a quick, quick answer, Sean, but I'll let you go.
Sean Donahoe: No, let's go ahead. What's yours going to be. I'm going to chuckle at this.
Phil Newton: Just turn it off. Turn it off. Not just financial media. Turn it off. It's a distraction. Just to kind of give you the background, I stopped wearing a watch. I don't look at the time, but I'm always on time. But I'm not stressing about what time is it. I turned off the news. For the most part, I don't watch a lot of television. I certainly don't watch daytime television. I don't watch the news anymore. I have an occasional flick through some of the headlines. It's just I've got nothing to do for five minutes, I'll just flick through the news. It doesn't matter, 'cause for the reason we've mentioned, there's always a narrative. They're looking for eyeballs on products. And I'm happy with this decision. I'm very aware that I am intentionally ignorant on a lot of things that go on in this world. Why? Because it makes my life stress free. Again, my objective here is I want a stress free life. I am not interested in what Kardashian has bought which handbag this week.
And sure, there's important world events, but sadly, you're not going to get that on mainstream media. So there's no point watching it. You're going to get the occasional, "There's been an earthquake somewhere," and sad as it is, you don't get the things, as far as I'm concerned, that should be newsworthy in the news. So I don't want to watch the mainstream media. Sorry, a little bit of a soap box speech there, Sean. But also, it does reduce the stress levels. Again, I'm reluctant to say it, but I'm going to say it. I've got Crohn's Disease. It's a stress related illness. I don't want to have that influence in my life, because I'm quite a passionate person, as you might have noticed, Sean. From time to time, I get inflamed about certain things. So I need to reduce that from my life. And I've got to admit, I have a significant measure of peace in my life because I'm intentionally ignorant. That doesn't mean I'm nor worldly and I'm not unaware of things that go on. I'm just not driven by the narrative and the bullshit that's in the news, and I don't check in every day at six o'clock for the TV headlines, because they're exaggerating the reality of what's going on, in most cases, and it's just unimportant to how I'm going to live my life, or with the objection of I want a stress free life.
Sean Donahoe: Now, you see, that's absolutely valid, and for the most part, absolutely. I mean, I turn off
Phil Newton: I appreciate that other people have the exact opposite view, but I know you're heavily onto reading the news, but it comes down to what we want out of life. You want to be informed, you want that information, and I made the decision that I'm happy without it. And I get that there's two opposing viewpoints here, Sean, so I think it's important that you perhaps put your perspective on to have the opposing viewpoint, so we've got what the fucking news should be doing, is having a balanced opinion.
Sean Donahoe: Yes, absolutely, couldn't agree more. However, it is not going to happen. So again, absolutely, Phil is dead on the nail. You know, you don't have to absorb this all of the time, and everything else.
Phil Newton: You'll get enough from flicking through the headlines.
Sean Donahoe: Absolutely. So what I do is I use a lot of news aggregators. I look for things that are usually, again, journalist written, but they usually have certain headlines that will give you whether you want to dig deeper. I usually have an awareness of everything that's going on, and it's not just because of trading but because I have international interests, national interests. I have multiple businesses.
Phil Newton: Yeah. It makes perfect sense.
Sean Donahoe: So again, I make it my business to have a good awareness of lots and lots of different things. But again, some of it does affect my trading. I do go to a lot of the financial news sites and everything else, because I'd look for multiple sources. If there's stuff that is relative to what I'm doing or relative to my businesses, again, multiple news sources, like we mentioned earlier on, and then I look for the originating sources, whether it be reports or anything else that are going on, or announcements. I look to see, basically, what we call by the numbers, what's the important things? And then I'll make up my own damned decisions about what it is and everything else, because I'm a smart, intelligent human being, or so I keep telling everyone, and make an informed decision.
Phil Newton: Make an informed decision. But that's the best way of doing it. I'm happy without it, for the reasons that I've mentioned, but it's necessary for your situation. So it comes back to that thing that we were talking about earlier, Sean. What's the objective? You know, you've got a necessity for keeping yourself appraised because it could impact other areas of your business empire. It doesn't affect mine, so I don't have no need. So I think, what's the objective? So it's not a case of where's the most reliable news source. I think you can get your information ...
Sean Donahoe: I don't think there is any single one source that you can trust.
Phil Newton: No, I don't think there is. Well, I was just going to touch on that. For the same reason, I've gone as far, Sean, as getting one of those apps and putting it on my phone, but I've not yet populated it with the news feeds, so I can have all those news feeds that I occasionally do like to look through, just so I can flick through the headlines and get an overview of, "Okay, well, what's going on in the world?" But I think what's more important is make yourself aware, from the headline, and see what all the headlines are saying, or the news articles, or whatever. But I think when you've got three or four articles, you'll see that you want to ignore the narrative and try and fill in the blanks. I think that's the best practice advice when it comes to things like the news media and the news sources, because taking the article on face value is what we've got an objection over. But you can use it to raise your awareness, which we're wholeheartedly in agreement over. Both of us agree on that.
Sean Donahoe: Absolutely.
Phil Newton: So if you can get multiple news sources and articles and then read between the lines, as you rightly said, to form, to develop your own opinion based on available information. And usually that involves reading between the lines. It's not easy. I'm going to admit. And it can take a little bit of time. But if you can make it a part of your daily routine, you know, put 10, 20, 30 minutes aside to skim through the headlines, and if you want to dig a little bit deeper then you can go into the article, just so you can get that awareness. That would be, to be fair, that's what I do do from time to time, when I'm in the mood to, "Okay, I want to get up to speed on this subject." So that's how I'll do it.
But 99% of the time, I want the stress free life. But if I was going to get more involved in it, and everything's ready to get going, I've just not populated my automated news feed with the RSS thingyimajiggy. But that's it. I think you hit the nail on the head there. If you're going to do it, lots of news source. Don't worry about the source unless it's the Daily Sport or The Sun or whatever rag there is. Have something that's got a little bit of legitimacy about it that usually puts out reasonable quality. Just understand that there is going to be bias with whatever you're reading, so with that in mind, make sure that you've got, maybe you've got one political orientation, and open your eyes to the opposite political viewpoints. You know what I'm saying here, Sean?
Sean Donahoe: Yeah.
Phil Newton: Just so you're not all your sources aren't biased or balanced in liberals or democratic. I don't know what the US politicians are, but ...
Sean Donahoe: Republican and liberal, yeah.
Phil Newton: That's the one, yeah. Same thing. We've all got different names for them, but you've got that kind of two opposing viewpoints so that you can kind of form that middle ground opinion. I think that's the best way. So go out of your comfort zone I think is good advice there, if you are going to do it, so you've got that well rounded opinion. That's how you would get a well rounded opinion, is go and read viewpoints that you disagree with. Go onto the other side of the fence of whatever your usual bias is, and go and have a look at the opposing viewpoints, 'cause that's how you're going to make an informed decision.
Sean Donahoe: That's it, that's exactly it. For every Drudge Report there's a Huffington Post, you know? You get the idea.
Phil Newton: Well, there you go, there's two to start with. Drudge Report, Huffington Post.
Sean Donahoe: Yeah, so I mean, that's on both sides of the political spectrum. But again, that's what I do is I look to see if there's a particular topic that is of import to me or I feel it can have some inference in my business, or interference in my trading, I'll go look at all sides. I'll look at the sources, I'll look at that and I'll make an informed decision based on that. I try and be impartial.
Phil Newton: We could do a whole show on this. I'm thinking about, I think it's an interesting question beyond the question.
Sean Donahoe: Yeah, absolutely. So it could well be. It is something that is a rabbit hole you could potentially go down.
Phil Newton: Maybe we should explore that? Maybe we should do that? We should look for, rather than bash the news sources, maybe we should have an experimental segment, or a section where we have maybe the Drudge Report and the Huffington Post and look at how they're presenting the same information or the same subject, and just see those polarizing viewpoints, and see if there is some middle ground? Maybe that would be an interesting experiment?
Sean Donahoe: Absolutely.
Phil Newton: Yeah, rather than bash on it, show how we can use the news to our advantage and kind of illustrate the process. I think that might be interesting. We'll make a mental note.
Sean Donahoe: Couple of weeks. Yeah, we'll do that in a couple of weeks. There you go.
Phil Newton:
Sean Donahoe: So okay, last question here. What exactly is theta decay when it comes to options? This is one that I ...
Phil Newton: Yeah, theta is time.
Sean Donahoe: Yeah.
Phil Newton: Going back to, to put it into a common, everyday illustration, because people get a little bit freaked out by what's known as the Greeks. Again, before people write in, I know it's not accurate. This is for the poor farm boys in the room, just like me, who had to have it simplified so that they could then move on. Think about it like it's first grade education versus year ten education. You've got to break it down in a certain way so you can level up. We're just starting at the lower level here, so we can get the poor farm boy explanation.
So theta, essentially like time, so time value. So just like you would have with a deposit in the real world, "I want to buy this car, but I don't have the money right now." That's the usual reason why you would pay a deposit. Can I reserve that car, and I will let you know in 30 days whether I've got the finance to buy it or whether I actually want it at all?
So with a deposit, you can control ownership of the car. You don't own the car, but you control it for 30 days. And that 30 days is time, and that's referred to in the option trading world as theta. So tomorrow, the option will be worth 29 days, and then the day after, 28 days. Again, I know it's not accurate, it's not a linear deduction, for the people who are already familiar with this, but this is just a primer to illustrate the concept. The theta decay is essentially the time premium that you pay in an option contract. In the real world, it would be, "I've put a deposit down and I've got 30 days to make my mind up as to whether I want the car or I don't want the car." After 30 days, you would typically lose your deposit, because you've got no time left to make a decision.
Now, in the real world, you'd normally get your deposit back, but in the option trading world, every day, you're going to lose some time value, or theta, and this is the reason why people sell options, because as the seller of the options, that theta, that time, is the premium that you collect. And every day, a little bit of that premium is yours to keep.
Sean Donahoe: Yeah, that makes sense. That's pretty much nailing it on the head.
Phil Newton: Not my first time, Sean.
Sean Donahoe: So yeah, that's pretty much it in a nutshell. It doesn't really need much more than that. I think we'll just rock on from there. So, okay, let's do it.
Automated: Don't forget, if you have a question you want to ask Sean and Phil, just go to, and your question may be featured on a future show.
Uh oh, what's that smell? It's time to call out the Wall Street shenanigans, mainstream confusion and outright hi jinks and hokum of so called experts. Yep, it's time for Bullshit of the Week.
Sean Donahoe: Okay, so Bullshit of the Week. This week, really, I mean, the last few weeks, California's been on fire, and to say up in smoke would be an understatement. Now, again, that's a little Cheech and Chong reference, but, in 2017, 30% to 40% of marijuana growers were impacted by California fires. And at that time, Mexican cartels, drug cartels, have been accused of, I'll have to say unproven, of setting some of these fires. However ...
Phil Newton: Is there arched eyebrows and air fingers involved in this conversation so far? Little wry looks at the camera that's not really there. If this was a TV show, we'd be like arm on the table, head tilted, raising an eyebrow, maybe there'd be air fingers involved. It was unproven.
Sean Donahoe: Yes, indeed. However, late last month in Greenville, we've had a lot of fires over here, and certainly in California, but the pot industry has been badly impacted in California. I mean, really badly. This is the worst year yet. So, for example, in Greenville, east of Mendocino in
Phil Newton: Is that a place or the farm that the cannabis is growing on?
Sean Donahoe: It's a place, but I can't pronounce names very well.
Phil Newton: Is it ironic that weed is grown in Greenville?
Sean Donahoe: Yeah, there you go. Exactly. But a massive fire tore through at least eight greenhouses containing some of the states most coveted premium herb, as they call it. There isn't an H over here.
Phil Newton: Oh, we've got
Sean Donahoe: yeah, that's it. But so far, thankfully, no human casualties, but 283800 acres have burned, and 75 homes have been destroyed. Over the weekend, police arrested three men in the town of Nice, or Nice, I don't know, for interfering with a fire operation because they refused to stop watering their marijuana plants and evacuate the area. I mean, some of these fires have been insane. Also in late July, in the northeast, near Reading, in Chester county, are several buildings operated by Alien Labs, another leading cannabis grower, were destroyed in the still growing Carr fire which has consumed over 173522 acres so far, at least report.
And it's early yet, but they're reckoning that last year's most damaging fires began in November and December, and with one state record already beat, 2018 is shaping up to be even more catastrophic for California's weed growers, still young marijuana industry. So not so much bullshit, but if you can think about it, that is one industry seriously up in smoke. And it's sad to see. Funnily enough, my father in law was actually right on the edge of being forced evacuation for one of the forest fires going on right now, and it is pretty bad.
Phil Newton: On the bright side, Sean, I know it's a tragedy, because it does impact a lot of people, no loss of life at this stage.
Sean Donahoe: So far, from what I've heard, no loss of life.
Phil Newton: At this stage, yes. At the time of this recording, no loss of life. But I'm always looking for the bright side in any bad news. What's the worst that could happen? You're going to lose a bit of property, okay, there's some monetary loss involved, but the reality is you're still living, you're still breathing. So always got to look on the bright side here. I know it's a sad situation, but thankfully, no-one's lost their life.
Sean Donahoe: Yeah, the one down in, this is kind of Lake Elsinore direction and everything.
Phil Newton: It does raise an interest, just to be a little bit crass for a moment, but we are market traders. Where is the trade? Is there going to be an opportunity in the next six to eight months with increased, hiked prices, as you said, with certain cannabis opportunities?
Sean Donahoe: Indeed, you know, the growers and everything else.
Phil Newton: I know I'm being a little bit crass here, but this is how we make our money. Is there an opportunity? Maybe there is, you know, alternatives. Maybe people want to, I don't know ...
Sean Donahoe: Absolutely.
Phil Newton: I don't know. Yeah. You know what I'm saying here. But that's what I'm thinking.
Sean Donahoe: Indeed. So keep an eye on it, but yeah, again, you know, out this fire, one thing that is a little bit of BS is, "Hey, pot supply is going to decrease a little bit. Maybe there is a trade there."
Phil Newton: Yep. Prices go up, there might be some temporary opportunities.
Sean Donahoe: Absolutely. So anyway, outside of all that.
Phil Newton: Buy low, buy low, get high.
Sean Donahoe: That was the tagline. So there you go. Okay, well, with that being said, ladies and gentlemen, that is it for this week. I hope you enjoyed the show. We covered a lot of different ground there, and thank you for listening. Please remember, this show is not free. It will cost you a five star review. Just go to, and you can subscribe and review to us, on your favorite way to hear the show. This helps us reach more traders and investors just like you.
Phil Newton: You can also connect with us on Facebook and on the Twitter machine, the social medias, if you want to connect with us there. We're a little bit more active now, we've got the Facebook group going, and I can see the notifications. It was a user error on my behalf, why I wasn't getting those notifications, Sean. But nevertheless, we're there. If you've like to connect to us, I was going to say the old fashioned way, is it the old fashioned way now? Via email? [email protected] I am very responsive there. The emails do come directly to me, and yeah, what have we got coming up in next week's show, Sean?
Sean Donahoe: Well, I thought we'd actually break some stuff down. We're going to actually say what it actually takes to be a rebel trader. We call ourselves rebel traders, but what does it actually mean, at the end of the day? What makes a rebel trader a rebel trader? So we're actually going to take a step back and kind of break that down. What do we do? Why do we do it, and how do we do it so damn well? Why are we so damned fabulous? So, with that being said ...
Phil Newton: Absolutely amazing, darling, fabulous.
Sean Donahoe: Absolutely. So with that being said ...
Phil Newton: Egos not included.
Sean Donahoe: Indeed. Along with Phil's batteries, we're going to wind down the voltage just a little bit. But there you go.
Phil Newton: Perfect.
Sean Donahoe: So with that being said, see you next time. Take care for now.
Phil Newton: Bye for now.
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(Click the time stamp to jump directly to that point in the episode.)

[00:00:11] Show Introduction

[00:02:08] Sean: We’re talking about market manipulation and the dirty tricks that go on under the hood.

[00:04:40] Sean: I’m going to tackle five different aspects of market manipulation and things to look for as you’re trading. Let’s start with fake news, let’s face it trust in the news is at an all-time low.

[00:05:44] Phil: When you think about the news, whether it’s fake or not fake, just think ‘what’s the product?’ From the viewer’s point of view, we think the product is the news, the reality is the viewer is the product because how they make money is selling advertising.

[00:08:16] Phil: I’ve got no problem with advertising, I use it myself. We’ve got something to sell but we’re not trying to over-sensationalize what we’re doing. This is what we do, it’s absolutely great but it’s not for everyone - I think that’s an honest narrative.

[00:13:08] Sean: Well, that’s what we’re going to talk about, what’s the solution here. One of the things we talk about is trust and verify. Is it based on an actual stock tip or a rumor?

[00:16:03] Phil: The news is representative of the general public, the general public is the last to know. Why would you want to follow the crowd, the crowd are always going in the wrong direction or a temporary direction.

[00:17:58] Phil: There’s nothing wrong with going with the crowd so long as it meets your usual strategy and requirements.

[00:19:05] Sean: We move on to the shady cousin of fake news which is ‘hump and dump.’

[00:19:37] Phil: None of these things are new, you can go back and get one of our favorite books, ‘Reminiscences of a Stock Operator’. There’s lessons to be learned, at various stages of your career you’re going to pick up some of these lessons.

[00:22:04] Sean: A pump happens when everyone buys into a vehicle that’s been hyped up. What happens is everyone buys into this vehicle based on all the hype and the prices and volume spike. When it reaches its zenith, the investors are committed to it, that’s when the promoters the dump their shares that they’ve been holding on to wanting to raise the value of them.

[00:22:38] Phil: Funnily enough, it’s when it hits the mainstream and the general public became aware of ‘this new shiny opportunity’, that’s when surprise people with interesting existing positions, they’re offloading because its hit the media.

[00:24:53] Sean: Now nimble traders can profit but you have to be very fast and flexible and it’s not for the faint of heart.

[00:26:05] Sean: Right now, crypto has less regulation, less sophisticated traders, a lot of hype. If you look at through to Christmas 2017, that was one of the biggest hype-trains but really that was one of the most elaborate pump and dumps.

[00:27:45] Sean: Another one is layering as it’s called or spoofing the tape, it’s got all sorts of different names. It’s a sneaky tactic, basically sophisticated short-term investors place orders on the market with no intention of having them filled. This shows a large block order of activity and other investors watching the tape think that a ‘Whale’ is trying to lock in a buy or a sell at a certain price and they jump in. The ‘dupes’ then try to ride the coat-tails and place their order at the same price. Right as the price is about to hit the price of the large order - boom, it vanishes and the dupes orders are filled. The market reacts accordingly resulting in losses for anyone duped.

[00:29:08] Phil: I used to look for this activity to help support when I was day trading. If you’ve got time to sit and watch a position, then this is a good way to validate the move.

[00:30:02] Phil: How to use that to your advantage, when you’re looking for the break out, you want to start looking for the higher volume orders. When you start seeing blocks of five-hundred, a thousand, two-thousand shares go through on a breakout, if you watch the raw data feed, you’ll see the order go through. What you don’t want to see is buy, buy, buy and then it stops and the momentum disappears.

[00:32:47] Phil: It’s not a skill you will pick up overnight but if you’re interested, shoot us an email at [email protected] and we can have a conversation about it.

[00:36:09] Sean: So moving on, I’m going to jump to another one which is relatively well-known but highly illegal. It’s called wash-trading, it’s been illegal since 1936, it’s when a big trader buys and sells the same stock continuously almost instantly at and around the same price. It’s a sneaky way to boost volume activity and here’s the thing, it’s usually done through multiple brokers or even dark pools to mask the source because of that illegality.

[00:37:18] Phil: You’ll get the activity but it perhaps won’t all be in one direction. The price isn’t going anywhere but activity is increasing.

[00:39:29] Sean: These guys can do tens of thousands of trades per second and it’s not u usual to mask a little bit of under-the-radar wash-trading in amongst that. You’d have to be a serious forensic analyst to see what’s going on there.

[00:41:34] Sean: So the last one we’re going to talk about today is big, it’s bad. Bear Raiding, this is a titan player move and larger short-sellers do this.

[00:42:31] Sean: Basically, they place large sell order to drive the price down.

[00:43:00] Phil: Usually these are liquid stocks and they are trying to manipulate a movement just by sheer force of will and the exposition size.

[00:43:10] Sean: Usually backs duo by lots of fake news stories being seeded in advance. It tries to create that knee-jerk reaction but as the price dips, stock losses are hit, this causes a cascade effect and the selling continues harder and fast.

[00:45:03] Phil: It happens on both sides of the market. Again, it’s using a lot of funds to push and bully the market.

[00:46:16] Sean: Think smarter, smell the air.

[00:49:12] Sean: If it smells like a bear raid, feels like a bear raid, and it growls like a bear raid, well, it probably is a bear raid. Position yourself accordingly.

[00:50:26] Rebel Trader Tip of the Week

[00:50:45] Sean: Okay, so the Rebel Trader Tip of the Week is plan ahead and cement why you are in a trade. All investors are sometimes tempted to quickly change their relationship statuses with their positions on a whim.

[00:51:26] Phil: With new information, it’s okay to change your opinion but just because your position size is too big or you’re unsure, you can eliminate all of that with some smart adjustments of your strategy.

[00:51:45] Sean: Making split-second decisions can lead to the classic investing mistake -which is ‘buying high and selling low’.

[00:54:04] Sean: Stop changing your relationship status so often based on what’s happening on a whim.

[00:54:17] Quickfire Round

[00:54:30] Sean: If you only had to recommend one book for technical analysis which one would it be?

[00:54:48] Phil: It’s a tough one, I think it’s not going to be a popular choice but ‘A-Z of Technical Analysis’. Think about it like a reference guide as opposed to a How-to type Book. It’s got lots of tools and indicators and patterns and will serve as a primer for you.

[00:58:40] Phil: You’ve got to think about the end goal - how do I see myself trading?

[01:01:49] Sean: One of the ones I started off with was ‘Technical Analysis of the Financial Markets’.

[01:04:00] Phil: You guys keep hitting the finance media for their bias - what is a reliable source of news?

[01:04:16] Phil: Turn it off. Not just financial media, it’s a distraction. There’s always a narrative. I’m very aware I am intentionally ignorant because it makes my life stress-free.

[01:07:16] Sean: What I do is use a lot of news aggregators, I look for things that are usually journalist-written and have certain headlines that make you want to dig deeper. Multiple news sources as we mentioned earlier on and then I look for the original sources and then I’ll make up my own decisions.

[01:11:58] Sean: If there is a particular topic than I feel can have some inference in my business or interference in my trading, I’ll go look at that and make an informed decision.

[01:13:11] Sean: What exactly is Theta decay when it comes to options?

[01:13:17] Phil: Theta is time. To put it into a common illustration, it is essentially like time value. I want this car but I don’t have the money right now so I reserve that car and I will let you know in thirty days whether I have the finance to buy it. With a deposit, you can control ownership of the car. That thirty days is time, that’s referred to in the options trading world as Theta. It’s not accurate but this is just to illustrate the concept.

[01:15:40] Sean: That’s pretty much it in a nutshell.

[01:15:58] Bulls**t of the Week

[01:16:20] Sean: Last few weeks, California has been on fire and to say up in smoke would be an understatement. In 2017, 30-40% of marijuana growers were impacted by California fires. At that time, Mexican Cartels have been accused (but unproven) of setting the fires. Late last month, in Greenville, to the east of Mendocino in Las Plumas County, a massive fire tore through at least eight greenhouses containing some of the state’s most coveted premium herb. So far, there have thankfully been no human casualties, but 283,800 acres have burned and 75 homes have been destroyed. Over the weekend, police arrested three men in the town of Nice for interfering with a fire operation after they refused to stop watering their marijuana plants and evacuate the area.

Also in late-July, to the northwest near Redding in Shasta County, several buildings operated by AlienLabs, another one of the leading cannabis growers in the state, were destroyed in the still growing Carr Fire, which has consumed 173,522 acres so far. And it’s early yet, last year’s most damaging fires began in November and December, and with one state record already beat, 2018 is shaping up to be even more catastrophic for California, its residents and the still-young marijuana industry.

[01:19:14] Phil: On the bright side, it’s a tragedy and does impact a lot of people but no loss of life at this stage.

[01:19:57] Phil: Is there going to be an opportunity in the next six to eight months with increased hike prices? Maybe there are alternatives. That’s what I’m thinking.

[01:20:40] Sean: Maybe there is a trade there.

[01:20:50] Sean: Okay, that is it for this week’s show. Thank you for listening to the show!Please remember that this show is not free.It will cost you a five-star review, just go to you can get access to previous and future shows, subscribe, and review us on your favorite way to hear the show.This helps us reach more traders and investors just like you.

[01:21:10] Phil: You can also connect with us on Facebook and on the Twitter machine also What have we got coming up in next week’s show Sean?

[01:21:38] Sean: I thought we’d break some stuff down and we’re going to discuss what it takes to be a Rebel Trader.

Resources & Links Mentioned in This Week's Show

3 Key Takeaways From This Show

  • Most market manipulation occurs in the short-term. Longer-term traders are generally unaffected.
  • If you do notice the hallmarks of a manipulation in effect, you can position yourself counter to the herd.
  • Most market pump and dump schemes happens in illiquid markets such as penny-stock, crypto, etc.

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