ES Monday 10-24-16 : Hot Topic

Conspiracy Theory

Who is manipulating the market now?

Have you ever heard of the Plunge Protection Team (PPT)? This is a supposed government organization that is tasked with buying futures (or other financial instruments) in the event of a large drop in the financial markets in order to supply stability to the markets. Does such a team really exists? I have no idea but I'd bet that they don't.

We love conspiracy theory and we'd love to think that when that short position is on the reason that it's not going down is because a secret government led organization is buying up the market to support it instead of letting your expert analysis play out like it is supposed to. They are buying up the market.

Exactly who are they? Are they the Plunge Protection Team? Are they government sponsored? Are they a large financial institution or an agreement among a bunch of financial futures traders?

Whoever they are, they are usually trading against us and not with us. Why is that? Why are they never trading in the same direction as us? Why, when we've just sold the current high of the day, do they want to take the market to another new high?

I think that you, as a trader, could improve the objectivity of your market analysis if you rethink the concept of "them."

Why do we want to be objective?

We all know that we are more objective in our market analysis before we enter a trade. Our major problems start once we are in a position. The direction of our position effects how we look at the market. If we're long, we're looking for signals and signs that support a long position and we're dismissing short signals and signs that might be yelling out - "get out of this long." This is human nature. Not only do we want to be right for the sake of our ego but also for the sake of our account balance. You don't need a psychiatrist to tell you this.

The concept of them is a big one. You feel that they are out to get you and that's why they are pushing the market against your position. What you need to do at this point is create an objective mindset. There really is no "them." The market doesn't have thousands or tens of thousands of participants. It has hundreds of thousands of participants and it is very unlikely that any group, person or organization nowadays can control the market through financial muscle and manipulation. (Self fulfilling prophecies are still possible when respected market gurus talk up/down the market but these gurus don't last forever.)

Take George Soros as an example. He took on the Bank of England in the 90's and won. Now it wasn't just him that took on the Bank of England, it was hundreds of thousands of currency traders that bet against the Bank of England's support of the British Pound. It was just that George Soros was reputed to have made the most out of sterling's ejection from the European Currency Mechanism. The Bank of England was Britain's official Plunge Protection Team and they couldn't support their own currency so why do you think that any other government would be able to support their own equity or forex markets? They can talk up a big game but at the end of the day it is very unlikely that they will be able to financially support a move that is backed by hundreds of thousands of traders.

They / Them

So what am I rambling on about in this article and why should you care? What I am doing is telling you to forget about Them. There is no Them or They. It is just you and a hundred thousand other traders in the market working together and against each other. Your task is to disassociate yourself from the Them concept and to look at your position objectively. By rejecting the conspiracy theory (or whatever you want to call it) you will be able to be more objective.

It is not easy, and don't think that it is going to be easy. Trying to read the market objectively after you've entered a position is way more difficult than before you've entered a position. However, knowing that you have lost your objectivity and keeping that at the forefront of your mind while in a position will in itself help you be more objective.


Try this technique when you're in a position: Each time you see a sign or signal that supports your current position ask yourself this question, "am I seeing this because I'm in a position or would I have felt this way before I entered this position?" Saying this out aloud (or even in your head) will help you maintain your objectivity.

And now for a caution. Don't immediately reverse any sign that you see because you fear that you are not being objective. It is possible to go from one extreme to the other. This happens when you start thinking that every support signal after you've entered a trade is a red herring from a subjective point of view and should be rejected. Again ask yourself the question, "if I wasn't in a trade what would this be telling me?"