Trading is poker. Game theory in the markets. — Transcript

Full transcript

1. 0:00Hello everyone.
2. 0:01It's been a minute since I've posted a
3. 0:04YouTube video.
4. 0:06And that's because
5. 0:08I felt as though I'd covered a lot of
6. 0:10ground in my previous videos here.
7. 0:13And so I was trying to figure out the
8. 0:18shortest and most concise way
9. 0:21to explain
10. 0:23the most important element of trading,
11. 0:25which is game theory.
12. 0:26And trading is a poker game. At least
13. 0:29day trading is. All trading is to some
14. 0:31degree, but day trading definitely is a
15. 0:33poker game.
16. 0:34A lot of the movement is dictated by
17. 0:38market making activity. And so today I
18. 0:41am going to quickly
19. 0:43run you through
20. 0:45the gist of it and tell you what
21. 0:49See, for some reason very few educators
22. 0:51ever explain.
23. 0:53Before I do that, real quick, I am going
24. 0:55to run another live webinar this fall.
25. 0:59It's also been a minute before I
26. 1:00since I've done that.
27. 1:02If you go to my site here, you go to the
28. 1:04live trading tab, you click on the CME
29. 1:06CBOT futures markets. That will take you
30. 1:09to the page that explains the structure
31. 1:11of the webinar.
32. 1:13In short, I'm going to start August 31st
33. 1:17and we're going to go through September
34. 1:194th.
35. 1:20I always like to include a non-farm
36. 1:21payrolls day. So it's the employment
37. 1:24number when I'm doing a webinar. So
38. 1:26that's the first Friday of every month.
39. 1:27So we'll run that week.
40. 1:29It'll be a three-day weekend for Labor
41. 1:30Day. We'll come back the next week, do
42. 1:32the 8th, 9th, 10th and 11th.
43. 1:35Then everybody will have the weekend to
44. 1:37digest it and we'll come back on
45. 1:38September 14th. I'll trade the morning
46. 1:40and then that entire day
47. 1:43will be a Q&A session so that I can
48. 1:44answer any questions people might have
49. 1:46at the end of the webinar. All right. So
50. 1:48if you have any interest in that, just
51. 1:50go to my contact page, send me an email
52. 1:52and let me know.
53. 1:54Before we get to the game theory element
54. 1:56of it,
55. 1:57let me just briefly touch on this again.
56. 1:59The reason I watch the depth of market
57. 2:02and the reason
58. 2:04pretty much every professional watches
59. 2:05the depth of market first and foremost
60. 2:08is because this is the order book. This
61. 2:10is showing exactly how many contracts
62. 2:12are bid and how many are offer and it's
63. 2:15showing changes in those numbers and
64. 2:17it's showing the total amounts that are
65. 2:19traded at each price so you can see
66. 2:22where there's been heavy trading and
67. 2:24where there's been light trading.
68. 2:27This information when read within
69. 2:31the context of also using game theory
70. 2:34can [snorts] be very helpful.
71. 2:36And you don't see a lot of this on the
72. 2:37chart. People say, "Well, you see the
73. 2:39chart go up and down." That's true, but
74. 2:41you'll find if you'll spend time
75. 2:44watching the depth of market
76. 2:46that
77. 2:47it becomes more natural even though it
78. 2:49doesn't seem that way to the eye
79. 2:52>> [snorts]
80. 2:52>> because it allows you to see the pace of
81. 2:55the activity a lot better.
82. 2:58And allows you of course to see the
83. 2:59liquidity which makes a very big
84. 3:01difference in how you have to approach
85. 3:03the day.
86. 3:04>> [snorts]
87. 3:04>> So when you're trading a market
88. 3:08that is say the 10-year which is is
89. 3:104,000 by 5,000 up um at most prices.
90. 3:14That changes obviously sometimes it's
91. 3:16only a thousand or 1,200 there or
92. 3:17whatever. But the average lately has
93. 3:19been around there between 3,000 and
94. 3:216,000 in the bid ask. I know that seems
95. 3:23like a lot, but you can see today I mean
96. 3:25we had a pretty wide range even with
97. 3:27that kind of volume so there's
98. 3:29plenty of opportunity there.
99. 3:31Point being the approach to the
100. 3:32Treasuries would be very different than
101. 3:35the approach to the ES or the Nasdaq. So
102. 3:39the Nasdaq only obviously has you know
103. 3:41one to five or maybe 10 on each side.
104. 3:44The ES is currently averaging around 10
105. 3:47to 40 or 50. Yes, there will be trades
106. 3:50or prices where maybe 70, 80, 100 trade.
107. 3:53Uh but the average bid ask is running
108. 3:55about 20 to 50.
109. 3:58So obviously, the approach to trading
110. 4:00the ES and it's the same in terms of
111. 4:02understanding game theory, but in terms
112. 4:04of uh picking your entries and your
113. 4:08exits and stop losses is going to be
114. 4:09different because this is uh thinner,
115. 4:11this less liquid, less liquidity equals
116. 4:14more volatility.
117. 4:16The higher something gets in terms of
118. 4:18price, the less liquid it becomes
119. 4:20because it takes more money to trade it.
120. 4:22And so, these are things that have to be
121. 4:24taken into consideration.
122. 4:27If you're watching the depth of market,
123. 4:29you are able to
124. 4:31basically get a better feel of the ebb
125. 4:33and flow and the pace of the action than
126. 4:36you are if you're just looking at a
127. 4:37chart.
128. 4:38And you can also look at the volume
129. 4:40profile, which a lot of people who look
130. 4:42at charts don't ever look at, and this
131. 4:44is a bit more useful in treasuries. So
132. 4:46again, you can see maybe prices that
133. 4:48held very, very well on heavy volume. Uh
134. 4:51at prices where it went through pretty
135. 4:53easily and there wasn't a lot of there
136. 4:54um in terms of resistance as it was
137. 4:56pushing higher. And then it hit
138. 4:58resistance here,
139. 4:59and no surprise, this ends up being the
140. 5:01temporary high where there's more
141. 5:03volume, right? So a lot of volume here,
142. 5:06they pushed through, not a lot of
143. 5:07resistance in terms of offers. More
144. 5:09offers show up here, more volume trades,
145. 5:12stops the move at least temporarily.
146. 5:16Idea being, if I'm long, I'm riding it
147. 5:19through
148. 5:20an area where there's not very much
149. 5:22resistance and it's easily heading
150. 5:24higher, and I'm exiting that trade and
151. 5:26taking my money
152. 5:27where I'm seeing it run into more
153. 5:29resistance. It's very simple premise. Uh
154. 5:31possibly even reversing and taking a
155. 5:33short trade and seeing if I can't get,
156. 5:34you know, catch a bounce kicking it back
157. 5:35down. Okay? So this is the main reason
158. 5:38professionals watch the depth of market.
159. 5:40It's very important.
160. 5:42And now, just to show the comparison,
161. 5:44liquidity does change over the the
162. 5:47months and the years. Again, it all
163. 5:48depends on the market. So, for those of
164. 5:50you who are fairly new to trading,
165. 5:52perhaps, I thought you've seen this.
166. 5:54If you go to my YouTube channel,
167. 5:57I definitely recommend going to my
168. 5:58playlist because I have everything I've
169. 6:00done there in the playlist. It's my
170. 6:01videos and some interviews that I did
171. 6:03with other people.
172. 6:04This is a video going back quite a few
173. 6:06years.
174. 6:07This is the ES.
175. 6:09And you can see in the ES,
176. 6:12there was 4,000 at the low on the bid.
177. 6:14The average was running about 1,000 to
178. 6:172,000 on the offers and the bids.
179. 6:21So, way more thick than you are seeing
180. 6:24today, which means less volatility,
181. 6:26which means a different approach in
182. 6:28terms of you have to actually trade more
183. 6:30size and go for shorter
184. 6:33moves, you know, in terms of price. So,
185. 6:35you're basically scaling up to make
186. 6:37money on more size as price
187. 6:40goes higher, the liquidity
188. 6:42becomes thinner, then you scale back on
189. 6:44size and you're cuz you're catching
190. 6:46bigger moves in terms of price movement.
191. 6:49And over here, you can see that the
192. 6:50Treasuries were actually at dinner. They
193. 6:52were averaging more about 2,000 per
194. 6:55side, two to 3,000 per side instead of 4
195. 6:57to 5,000 per side.
196. 7:00So, this does change. You know, jumping
197. 7:02forward a little bit,
198. 7:05you can see again like So, here the ES
199. 7:07isn't that as thick as it was in the
200. 7:09previous one, but it was still somewhat
201. 7:11thick, about 1,000 up or maybe 500 up at
202. 7:13each bid ask. And then when we go
203. 7:16forward here,
204. 7:17um to my last order flow basics two
205. 7:19video, you see again this the 10-year is
206. 7:22about 2,000 on each side and the ES had
207. 7:24moved higher. So, now it's at averaging
208. 7:2650 to maybe 150 per side on each side in
209. 7:29the bid ask. All right, so just add that
210. 7:31patience is needed today.
211. 7:33Okay. So, here we go. Trading is poker.
212. 7:36Game theory is the key.
213. 7:38I'm going to use a simple
214. 7:41paint app here
215. 7:43to draw charts for you. There's no need
216. 7:45to go through actual charts. You all
217. 7:48know You all know what they are. You've
218. 7:49seen them. You'll know exactly what I'm
219. 7:51describing when I go through this with
220. 7:52you.
221. 7:53So, it'll be very simple to understand.
222. 7:55And hopefully, it will help you in the
223. 7:58coming months
224. 8:00and years of your trading.
225. 8:01So, here we go.
226. 8:04Anticipate the breakout before it
227. 8:05happens. Don't chase too far after it
228. 8:08happens.
229. 8:11High of the day,
230. 8:14low of the day.
231. 8:15All right.
232. 8:17Market's trading in here.
233. 8:20Now, this is the mistake a lot of
234. 8:21traders make, particularly when they
235. 8:23first get into it. They're looking at
236. 8:24technicals and reading all the nonsense
237. 8:26that's been out there for decades.
238. 8:28The idea is high of the day, a breakout
239. 8:31happens, the person waits for the
240. 8:32breakout to happen, they buy up here
241. 8:35somewhere, and they're buying because
242. 8:38they believe that the breakout will
243. 8:39trigger off buy stops, more orders will
244. 8:41buy, and then that's how you make money.
245. 8:44Right? Okay, that is true. That is the
246. 8:46idea.
247. 8:48From a game theory perspective, the
248. 8:50market makers who have billions and
249. 8:52billions of dollars to throw at these
250. 8:54markets
251. 8:55are constantly working orders all over
252. 8:57the place.
253. 8:59And
254. 9:02there is manipulation every day. And I
255. 9:04won't go into who does it. Not going to
256. 9:06name any names, but just
257. 9:08know that I worked in the industry many,
258. 9:10many years ago. I know what manipulation
259. 9:12is. That's why I can make a lot of the
260. 9:14reads that I make.
261. 9:15They'll say it's not manipulation, that
262. 9:17they simply have more money moving in
263. 9:18one direction, but there is a lot of
264. 9:20spoofing, there's a lot of games played,
265. 9:22and it is game theory.
266. 9:23So, essentially, what's happening is at
267. 9:25some point
268. 9:27the
269. 9:28market is trading like so, and then
270. 9:31let's just say there is a market maker
271. 9:34anticipating, trying to spike a run
272. 9:36through highs.
273. 9:38So, the market kind of hovers here and
274. 9:40all the retail traders are waiting for
275. 9:43the break before they buy.
276. 9:45The professional retail guy, or people
277. 9:48working at say smaller prop firms,
278. 9:51are reading this price action and
279. 9:53they're reading the game theory element
280. 9:55and they've seen it a thousand times and
281. 9:57they're fairly certain that the market
282. 9:58makers are going to make a run highs.
283. 10:01This is based on various
284. 10:03information flow and obviously a lot of
285. 10:06experience, but this is the idea.
286. 10:08So,
287. 10:09buying
288. 10:11before the breakout is the idea. So, I'm
289. 10:13looking to buy here whenever I think
290. 10:15it's going to break so that when it does
291. 10:17break, if those buy stops gets set off
292. 10:19and the market rockets higher, I'm
293. 10:21getting paid as that happens.
294. 10:23And as soon as it shows signs of
295. 10:25stopping,
296. 10:26I exit and I take my money.
297. 10:29Okay?
298. 10:31The retail trader, instead, typically
299. 10:33waits for the breakout, buys up here,
300. 10:36watches the market reverse, and then
301. 10:39pukes for a loss once it breaks back
302. 10:40below the break point, right? And
303. 10:43wonders what happened. Well, what
304. 10:44happened is there was a market maker
305. 10:46that spent 30 minutes or 40 minutes or
306. 10:48whatever building into long positions
307. 10:50down in this area with the intention of
308. 10:53running highs.
309. 10:54Before the highs are even broken, the
310. 10:56market maker is working sell orders
311. 10:59above the high. So, that when
312. 11:02the firm pushes and successfully creates
313. 11:06a buy stop run, it's already had It
314. 11:09already has offers working and is
315. 11:11exiting the long position that it built
316. 11:13here into the buy orders that are
317. 11:15getting hit here. All right? It is
318. 11:18essentially a pump and dump. That's what
319. 11:20it is. They dump into it.
320. 11:22They have all the money, so when they
321. 11:23dump, there's no more heavy buying.
322. 11:25People start exiting their trades
323. 11:27because the market price stops.
324. 11:29Uh uh
325. 11:30very
326. 11:31short-term programs begin
327. 11:34uh uh shorting in anticipation the
328. 11:36market going back below. It does, the
329. 11:38average retail guy gets caught, he takes
330. 11:40a loss. All right? That's the game
331. 11:42theory of breakouts.
332. 11:44The next common trap retail traders face
333. 11:47is
334. 11:48not going for the reversal when it's
335. 11:51happening and waiting too long looking
336. 11:54for a level to hold and then getting
337. 11:56caught because they acted too late. Very
338. 11:58common. I'll show you.
339. 12:02So, here we go. Market is tanking. Boom
340. 12:05boom boom boom boom boom boom, right?
341. 12:06Falling like a rock.
342. 12:09At some point, except on those very rare
343. 12:12days when it's just a complete one-way
344. 12:14street,
345. 12:16you have to anticipate that people on
346. 12:19the short side here are going to start
347. 12:21taking their money off the table in
348. 12:22anticipation
349. 12:24of it running out of steam. And this is
350. 12:26what the market makers are doing.
351. 12:27They're already short probably way up
352. 12:30here. They begin dumping off, let's say
353. 12:31maybe early, send the market straight
354. 12:33down like this.
355. 12:36The average person will not look to
356. 12:39catch the spike back up on that first
357. 12:41bounce.
358. 12:43And
359. 12:44while that can be a bit tricky, again,
360. 12:47I'm looking for those moments because
361. 12:49that is what often becomes a straight up
362. 12:52reversal, which is where you'll see it
363. 12:53bounce then it might pull in a little
364. 12:55bit, but all that's happening here is
365. 12:56the buyers are now amping up
366. 12:59catching the sell orders that are
367. 13:01playing the pullback, right? And then
368. 13:03spiking it again. And then they let it
369. 13:05fall in, cover some, falls in, somebody
370. 13:08else is playing the 50% pullback, they
371. 13:10buy those orders, run it right back up
372. 13:12again, and it recovers everything that
373. 13:14it lost maybe during the opening 30
374. 13:16minutes.
375. 13:18So, if I can catch it in here, I'm able
376. 13:20to ride at least the first bounce, and
377. 13:22if I'm reading it correctly, I catch the
378. 13:24second possibly even the third. If I end
379. 13:26up waiting for a double bottom, as
380. 13:28they're called, or triple bottom, I miss
381. 13:30the entire reversal. Okay?
382. 13:34The other route here,
383. 13:37sometimes there is a double bottom. So,
384. 13:38it comes in, it bounces, comes back
385. 13:41down, bounces again.
386. 13:43Again, some retail might be anticipating
387. 13:46this second double bottom here.
388. 13:49Uh
389. 13:50not uncommon, I would say
390. 13:53honestly, it probably doesn't happen any
391. 13:54more than 50/50. So, it's not really a
392. 13:56reliable gauge in terms of
393. 13:58statistically.
394. 13:59But, depending on the the context of
395. 14:01price action, if it makes sense that the
396. 14:04selling steam has run out, what will
397. 14:06often happen is buyers come in, it pops,
398. 14:09the buyers pull their bids, they let it
399. 14:10fall back in so that they can then buy
400. 14:12again around the same prices. So, a
401. 14:14market maker ends up selling, covering
402. 14:17the shorts. This causes a spike higher.
403. 14:20The market maker doesn't buy up here,
404. 14:22the market maker just continues working
405. 14:23bids in this area. So, when it falls,
406. 14:25they buy again, then they push, and then
407. 14:28often, you know, you'll see it go like
408. 14:29sideways like that afterwards. All
409. 14:31right? So,
410. 14:33depending on the action, double bottom,
411. 14:35possible buy. This is why the market
412. 14:37maker, or the large institutions, are
413. 14:40intentionally moving price in such a
414. 14:42way.
415. 14:45The next thing that happens would be
416. 14:47this.
417. 14:49So, you don't catch the first
418. 14:51uh bounce, you don't catch the second
419. 14:53bounce, but now you have your
420. 14:55confirmation, supposedly, that this is
421. 14:57the level.
422. 14:59The market starts to come back down
423. 15:00here, you start working
424. 15:03your bids.
425. 15:05Doesn't spell very well. The market
426. 15:07makers see the buy bids out there,
427. 15:10they hit your bid and shove right
428. 15:12through it on sell orders, knowing that
429. 15:14they're about to trap all the people who
430. 15:15are taking long trades at the bottom.
431. 15:18They're going to flush those people out
432. 15:19by continuing to push until everybody
433. 15:21who bought here is now puking, selling
434. 15:24here for a loss. The large firms that
435. 15:27sold into these bids at the break point
436. 15:30are now covering for a profit. You'll
437. 15:32puke, the market will turn, come back
438. 15:34up, and then do this for the rest of the
439. 15:36day, and you're out of your money, and
440. 15:37there's no chance to get it back.
441. 15:39Everybody, [snorts] I'm sure, has
442. 15:40experienced that, right? So,
443. 15:44try to anticipate the first, try to
444. 15:46anticipate the second, probably avoid
445. 15:48the third or fourth. It just It It
446. 15:50becomes less and less reliable the
447. 15:51farther out it goes.
448. 15:54The next common scenario that catches a
449. 15:57lot of
450. 15:59retail traders is what's called in the
451. 16:01industry the shakeout.
452. 16:04The way to handle this is either realize
453. 16:08that a shakeout period is a real
454. 16:10possibility,
455. 16:12and be committed to your read,
456. 16:16or
457. 16:17know that you don't feel like sitting in
458. 16:19a trade, possibly for 10 or 20 minutes,
459. 16:21and just don't take the trade, and avoid
460. 16:23the entire shakeout scenario, if you
461. 16:24don't have confidence in the read.
462. 16:27What is a shakeout? The shakeout is
463. 16:29quite simple.
464. 16:31Maybe some large firms do have the
465. 16:32intention of running highs.
466. 16:34The market gets up to this area,
467. 16:37and you're anticipating the breakout,
468. 16:39and you actually do buy before the
469. 16:41market hits the high of the day,
470. 16:43and then suddenly the market just goes
471. 16:44sideways, and you sit for 2 minutes, 3
472. 16:47minutes, 5 minutes, 10 minutes, 12
473. 16:48minutes, and it just will not go.
474. 16:52Eventually, it dips like this, you
475. 16:54decide to just take the trade off for
476. 16:56maybe a small
477. 16:58loss, or a small profit, or a break
478. 17:01even, and within 30 seconds of you
479. 17:04exiting the trade after holding it for
480. 17:0615 minutes, the market makes new highs,
481. 17:08and you miss the trade.
482. 17:10This [snorts] is by design.
483. 17:12So, these programs
484. 17:14are amazingly efficient,
485. 17:17particularly at reading all the orders
486. 17:20that are hitting the market.
487. 17:25And
488. 17:27it's a well-known fact now that the
489. 17:29majority of these day trades
490. 17:33are very short-term. So, the market
491. 17:36makers know that the average person
492. 17:39isn't really looking sitting a trade for
493. 17:41a long period of time. So, as the price
494. 17:45approaches the high
495. 17:47rather than run the high right away,
496. 17:49what will often happen is the market
497. 17:51makers will simply sit.
498. 17:53And they're not dumping for a profit
499. 17:55because they do want to push price
500. 17:56higher.
501. 17:58But, they're not going to pay you while
502. 18:00you're sitting in the trade. So, they
503. 18:02basically wait you out, which is called
504. 18:03the shakeout. So, they just continue
505. 18:05working bids and maybe a few offers and
506. 18:07some bids and some offers and they're
507. 18:09just kind of chopping back and forth,
508. 18:10back and forth, and they're monitoring
509. 18:12all the trades that are taking place.
510. 18:14And once they feel
511. 18:17that all the people who can be shaken
512. 18:19out have been shaken out and then
513. 18:22ideally some of those people who were
514. 18:24long have now reversed and gone short
515. 18:26here.
516. 18:28That's when the market maker will make
517. 18:29the push
518. 18:31and the market runs away. They catch
519. 18:33anybody who's short, shorts puke out for
520. 18:36a loss above the highs and then all the
521. 18:38people that were sitting for this amount
522. 18:39of time that exited missed the move.
523. 18:43Okay? Very common.
524. 18:45It's possible to spot this again with
525. 18:47some experience.
526. 18:49I tend to avoid this situation. I just
527. 18:52chalk it up as I don't know when they're
528. 18:54going to run the high and if I sit in
529. 18:56that trade for more than 5 or 6 minutes
530. 18:59and it's still not going, typically I'll
531. 19:01just chalk it up as a break even, get
532. 19:03out of the trade and if it runs away
533. 19:05without me, it does.
534. 19:06Uh so
535. 19:08either know that going into it and
536. 19:10decide to avoid it
537. 19:11or you know, do like I did, just take a
538. 19:13break even or something. Or if you
539. 19:15really have a strong opinion and you're
540. 19:17pretty certain that you're reading it
541. 19:18correctly, you have to be committed.
542. 19:21And then have a logical stop in place if
543. 19:23it doesn't happen and starts to decline
544. 19:26on you. Or maybe have just a set length
545. 19:29of time based on your product. So on
546. 19:33your experience, perhaps you've noticed
547. 19:35that a shakeout period on average might
548. 19:38last
549. 19:406 minutes to 15 minutes. Fine. Hold up
550. 19:43to 15 minutes and if still hasn't gone
551. 19:45by 15 minutes, just get out. You know,
552. 19:47you'd have to design your own method for
553. 19:48that, but
554. 19:50very common situation.
555. 19:52Okay, so quite frequently
556. 19:54what's happening
557. 19:56in the market making world is that a
558. 19:59designated market maker
559. 20:02is simultaneously working bids and
560. 20:04offers. This is something most retail
561. 20:06traders don't understand.
562. 20:09So a market maker might be trading
563. 20:11multiple stocks, options, ETFs, and
564. 20:15futures.
565. 20:16And this is easier to see in lower
566. 20:18priced stocks.
567. 20:20But you can also see it in higher priced
568. 20:22stocks. Sometimes in the future,
569. 20:23sometimes the futures are moving too
570. 20:24fast to really see it.
571. 20:26But what you might see, let's say in a
572. 20:28well-traded stock
573. 20:30has say has an average bid ask of around
574. 20:3240,000 shares.
575. 20:34And you'll see that there's 40,000
576. 20:35shares on the bid, 40,000 shares on the
577. 20:37offer. Here's your time and sales over
578. 20:38here. And it sits around that time with
579. 20:41sits around those those amounts, excuse
580. 20:43me.
581. 20:44And they change maybe a little bit,
582. 20:4535,000, 42,000, right on both sides. And
583. 20:48not much is happening in the time and
584. 20:49sales.
585. 20:50And then if you watch time and sales
586. 20:52you'll see that 30,000 shares or maybe
587. 20:5540,000 shares trades into the bid.
588. 20:58And the second that happens, the 40,000
589. 21:02shares on the offer disappears
590. 21:05and price goes click, click, click,
591. 21:06click, higher.
592. 21:08So, what happened in that situation is
593. 21:10that the market maker was working shares
594. 21:12on both sides, the majority of the
595. 21:15shares on both sides. When he gets
596. 21:18filled, or the firm gets filled, on the
597. 21:21bid, it instantly cancels the ask,
598. 21:25which now makes the ask seem weak, which
599. 21:27now automatically attracts buy orders
600. 21:29into that price, and if they're working
601. 21:31the next price, same thing, and it
602. 21:33triggers some buying up a couple pennies
603. 21:36or whatever, couple ticks,
604. 21:38off of this price, and then once it
605. 21:40clicks up, the market maker then dumps
606. 21:43the 40,000 shares into the new bids.
607. 21:45It is a classic technique that is used
608. 21:48all the time.
609. 21:49It is essentially spoofing, but if
610. 21:51they're working these orders for a long
611. 21:52enough time period, it's not considered
612. 21:54spoofing, that's how they get away with
613. 21:55it. So, they get the fill, they cancel,
614. 21:57they push, they cover, and they do that
615. 22:00throughout the day. Obviously, not all
616. 22:01day every day, you know, you can't
617. 22:03manipulate it to that extent all all
618. 22:05day, eventually other other market
619. 22:07makers will catch you, but it's a very
620. 22:09common tactic. So, you're trying not to
621. 22:11fall prey to that kind of a thing, and
622. 22:13it's a good example of
623. 22:16just the sheer manipulation that can
624. 22:18happen,
625. 22:19and the game theory that is applied,
626. 22:21which constantly constantly traps people
627. 22:24on the wrong side. Okay, so hopefully
628. 22:27that's helpful.
629. 22:29If you want to know how I know this,
630. 22:30it's because I worked for
631. 22:33a few firms in Chicago way back in the
632. 22:35day.
633. 22:36We traded an extensive amount of volume,
634. 22:39particularly in the 10-year notes and
635. 22:41the 30-year bonds.
636. 22:44We were not designated market makers, it
637. 22:46was a prop firm, so it was every man for
638. 22:48himself, but the amount of volume being
639. 22:50traded on some days
640. 22:53would have qualified us for market maker
641. 22:56status if that had been the business
642. 22:58model of the firm. It just wasn't.
643. 23:01So, I've seen this up close and
644. 23:03personal. I know how size influences
645. 23:06price. I know the games that are played.
646. 23:09What I'm sharing is factual. It's not
647. 23:11theory.
648. 23:12That is the reality of it, and every day
649. 23:16trader should be aware of this
650. 23:19because it's what you need to know in
651. 23:21order to develop a method that has
652. 23:24a chance of being consistently
653. 23:26profitable.
654. 23:28Everybody has swings here and there, and
655. 23:30they you know, they find these moments,
656. 23:33but being consistently profitable
657. 23:36week to week and month to month really
658. 23:38does require a solid understanding of
659. 23:40game theory as it's applied to
660. 23:42the markets.
661. 23:44All right. Got any questions? Hit me up
662. 23:45on my site, and thank you for watching.