Market Manipulation - Understanding the Money Whales Game (2024)

How the big money players manipulate the market

Institutional or big money traders are playing a different game than your average trader. Even though the playing field is technically the same, institutional traders have different tools at their disposal and a different way to play the game. Any trader needs to understand these big-time participants to know who they are actually dealing with in the market and manipulate it.

One Road, Many Types of Vehicles

Imagine you’re driving down the highway in your small car. To the left, you’ve got a semi. To your right, a train whizzes by, and overheard, a plane flies low and rumbles your car. This is what it’s like in the market.

In the market, there are all types of participants sharing the same path. They all want to win, and they’re all competing. So it’s up to you to understand and be aware that they’re on the road, too, so you don’t get hit.

Influencing the Market

There is one big difference between regular traders and institutional, big traders in the market. A big trader has the ability to change and manipulate the market direction.

When they are operating in the market, accumulating and distributing their positions, they are actually affecting a price change. However, when you trade as a simple, small trader, you can only place your order, get it filled and barely make a change to the market.

It’s like if you have a glass of water and you put a big chunk of ice in it. It spills over. But if you just put one drop in the glass, you’ll barely upset the water. This is how big traders affect the market versus what you do.

What Are the Signs?

There are big signs when big players move into the market. Since they’re so big, their activity can be seen from quite a distance. That’s a huge minus for these players.

Since they’re seen, they have to apply different tactics to purchase or sell their positions.

For example, if you want to buy or sell, you put the full order you want, and that’s it. When the big guy needs to do it, their position is so huge it will overflood the market with demand or supplyand the price will take a huge spike or drop. Since their order is enormous, it’s not sure they will even have enough participants to fulfill their request. It’s not that obvious that they’ll find all the sellers and buyers needed to fulfill.

Their tactic will, therefore, be to break their position into many different little chunks. When a big player wants to rid a position and change direction, they need to do it in small pieces to try to hide their intentions.

Moving a Huge Order

Imagine a big guy wants to get rid of 500 million dollars of something. They’ve been holding for a while, and now they want to sell it off. The problem is, they can’t tell the market they want to get rid of 500 million dollars. If they reveal this, the price will go down, and they’ll lose a ton of money.

So instead, they distribute this amount in small pieces into the market. They might sell 500,000, then another 500,000, then 1 million. Every time they put these orders, these orders might slightly change the market and bring it down, but it won’t disrupt things completely.

Before they add more orders, they’ll wait and let the price go up. Then they will place more orders. This way, they’ll get their preferred price to sell. They will slowly but consistently get rid of the huge position.

Sometimes it gets more complicated. Sometimes when they sell, others see it as an opportunity to act in the opposite.

At times they place their positions, and the price will react too little, so they will wait for the price to come back up. If it doesn’t, they’ll inject orders to give the impression price is going up. This is done to entice other traders to buy.

Simply put, they have enough money to manipulate the market direction. When it goes up, others will see the momentum and join the market. Then the big players can continue with their sales.

Pulling the Strings

We’ve just described a pattern where the price ranges and spikes a little up and a little down. These are all manipulations to give traders a false idea of momentum. The reality is, the big fish is just trying to alter the market to their benefit.

Eventually, the big fish close their positions and get all the money back.

This isn’t the end, though. Now the big player has to reinvest. After they finished the sell-off, now they would want to take the same amount and buy short orders. They would make the same pattern to sell but with buying. The ranging and the fakeouts would happen all over again, but this time in the opposite direction.

The Wyckoff Theory

Observing the price action, Wyckoff formulated his theory that identifies key elements in the trend development. These periods are marked by accumulation and distribution.

For further understanding of this concept, we refer you to the Wykoff theory. Since it was discovered in the 1920s, this theory has been tested to understand these moves via charts.

Market Manipulation Bottom Line

It’s very important to understand how to reconcile your trading with the other participants out there. These big fish will manipulate the price, and you have to know what the tactics for coping with these moves will be to play safely while trading for yourself.

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