The silver market manipulation was almost always a sell-down – and those sell downs often started at near the same time of day – occasionally on the same day of the week, as the previous. There was almost always a sell-down just before options expiration dates. Otherwise the markets traded about as usual. Knowing that little bit helped me avoid most of the manipulations – and take advantage of the rebound once the crooks had done their dirty work.

When the market suddenly moves violently, I am either in the market or not. If I am in the market, the trade can be moving for me or against me. Obviously my reactions will be vastly different depending on which side of the move I find myself. If I am on the positive side, I exhilarate in the event, watching my profits pile up at a rate I usually only get in my dreams.

If the move is against my position, my stop loss should get me out before too much damage is done. That is much truer today, in this age of electronic trading, than it was many years ago when you had to call your broker. In a rapidly moving market, time is of the essence. One very important point here: my stop losses are ALWAYS market orders. A stop with a limit can be lethal here. When the market suddenly accelerates – from manipulation or not – price changes so fast that a stop with a limit may not get executed. In such a case your losses could be very heavy. A market order may cost you more than you expected, but it will likely get you out as quickly as possible.

If I am out of the market, I take serious notice and began to look for signs that the move – again manipulation or not – is about to run its course. Whether the sudden move was manipulation or market reaction to a fundamental event the moves usually play themselves out fairly quickly – and usually go much further than one might think possible. I think that this is particularly true in FOREX.

The resulting bounce, when the market changes direction, is often a potential profit maker for the trader that times his entry well. Bounces are often significant for the simple reason that big moves – in any direction – tend to go much further than can be supported; and the resulting correction can often be as much as 50%, or more, of the range of the original move.

I have read that FOREX markets are manipulated. I do not know if it is true or not. However, my trading method would change very little – even if I knew it was manipulated. Most FOREX markets are really huge. It would take the monetary muscle of a central bank to manipulate such a market for more than a brief time. And even central banks usually cannot maintain a manipulative move that the markets do not agree with over a long time span.

Market manipulation may be fact or fiction. As an individual short term trader I have no way of knowing if a FOREX market is manipulated or not. I do, however, know that successful FOREX traders are always trading in the direction the market is moving at the moment.  And we always have a stop ready to take us out of the market if that direction suddenly changes.

There is only one thing that I can think of that has changed in my trading method as result of knowing that the markets may be manipulated occasionally; that is the use of the SIZE of the bid and ask price. I have noticed that this data often contradicts what I would expect from the current market movement. It could be an indication of high frequency trading (HFT) attempting to affect the market. But such shenanigans seem only to affect the market for a very short time span. So I pretty much ignore bid and ask quantities and watch the time of sales values when trading futures. When the ticks are predominantly going at the bid it’s bearish and when the ticks are going predominantly at the ask its bullish. I do not pay attention to the bid or ask at all in FOREX trading – I simply watch the single tick chart and my other indictors to monitor market momentum.

I am not in any way endorsing market manipulation – or even excusing it. It is illegal and morally wrong. Given a choice, I would prefer to trade a market in which manipulation never occurred. I would also love to live in a world that was constantly at peace. Given the nature of human beings neither is likely for the foreseeable future. If I am going to trade a market I must assume that sudden moves are possible and they can be against my position. That is a market reality – manipulation or not.

As individual traders we can do nothing about market manipulation. All we can do, if we want to trade, is to trade all markets carefully - and assume that a manipulation or a sudden fundamental event can occur at any time and cause the market to temporarily go bonkers. If you have a good short term trading system, it will protect you from sudden market moves that might go against you – whatever the cause of the event might be. 

Good luck in your trading.

Phil Elrod
Author and Trader
Trading Between The Lines