Most Popular
1. THE INFLATION MONSTER is Forecasting RECESSION - Nadeem_Walayat
2.Why APPLE Could CRASH the Stock Market! - Nadeem_Walayat
3.The Stocks Stealth BEAR Market - Nadeem_Walayat
4.Inflation, Commodities and Interest Rates : Paradigm Shifts in Macrotrends - Rambus_Chartology
5.Stock Market in the Eye of the Storm, Visualising AI Tech Stocks Buying Levels - Nadeem_Walayat
6.AI Tech Stocks Earnings BloodBath Buying Opportunity - Nadeem_Walayat
7.PPT HALTS STOCK MARKET CRASH ahead of Fed May Interest Rate Hike Meeting - Nadeem_Walayat
8.50 Small Cap Growth Stocks Analysis to CAPITALISE on the Stock Market Inflation -Nadeem_Walayat
9.WE HAVE NO CHOICE BUT TO INVEST IN STOCKS AND HOUSING MARKET - Nadeem_Walayat
10.Apple and Microsoft Nuts Are About to CRACK and Send Stock Market Sharply Lower - Nadeem_Walayat
Last 7 days
Is the US Yield Curve Inversion Broken? - 3rd July 22
New Signs Economic Turmoil Will Prompt Fed to Lose Its Nerve - 3rd July 22
Stagflation With Powell Could Make Gold Price Happy - 3rd July 22
UK Housing Market Analysis, Trend Forecast 2022 to 2025 - Part 2 - 30th June 22
Stock Market Turning the Screws - 30th June 22
How to Ignore Stocks (and why you should) - 30th June 22
Top Tips For Getting The Correct Insurance Option For Your Needs - 30th June 22
Central Banks Plan To Buy More Gold In 2022 - 30th June 22
AI Tech Stock PORTFOLIO NAME OF THE GAME - 29th June 22
Rebounding Crude Oil Gets Far Away from the Bearish Side - 29th June 22
UK House Prices - Lets Get Jiggy With UK INTEREST RATES - 28th June 22
GOLD STOCKS ARE WORSE THAN GOLD - 28th June 22
This “Bizarre” Chart is Wrecking the Stock Market - 28th June 22
Recession Question Answered - 28th June 22
Technical Analysis: Why You Should Expect a Popularity Surge - 28th June 22
Have US Bonds Bottomed? - 27th June 22
Gold Junior Miners: A Bearish Push Is Coming to Move Them Lower - 27th June 22
Stock Market Watching Out - 27th June 22
The NEXT BIG EMPIRE WILL BE..... CANZUK - 25th June 22
Who (or What) Is Really in Charge of Bitcoin's Price Swings? - 25th June 22
Crude Oil Price Forecast - Trend Breaks Downward – Rejecting The $120 Level - 25th June 22
Everyone and their Grandma is Expecting a Big Stocks Bear Market Rally - 23rd June 22
The Fed’s Hawkish Bite Left Its Mark on the S&P 500 Stocks - 23rd June 22
No Dodging the Stock Market Bullet - 23rd June 22
How To Set Up A Business To Better Manage In The Free Market - 23rd June 22
Why Are Precious Metals Considered A Good Investment? Find Out Here - 23rd June 22
UK House Prices and the Inflation Mega-trend - 22nd June 22
Sportsbook Betting Reviews: How to Choose a Sportsbook- 22nd June 22
Looking to buy Cannabis Stocks? - 22nd June 22
UK House Prices Momentum Forecast - 21st June 22
The Fed is Incompetent - Beware the Dancing Market Puppet - 21st June 22
US Economy Headed for a Hard Landing - 21st June 22
How to Invest in EU - New Opportunities Uncovered - 21st June 22
How To Protect Your Assets During Inflation - 21st June 22

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Three Simple Steps to Beat a 'Rigged' Stock Market

Stock-Markets / Stock Markets 2016 Feb 15, 2016 - 03:51 PM GMT

By: DW

Stock-Markets

Alexander Green writes:

Best-selling author Michael Lewis made headlines a couple years ago when he argued in his book Flash Boys that "the stock market is rigged."
 
Lewis points out that high-frequency traders use sophisticated computer algorithms to execute orders in a fraction of a second, effectively front-running the rest of us.

 
This is often true.
 
In an interview with 60 Minutes in 2014, he complained that a) nothing has been done about the problem and b) the lack of furor from individual investors is inexplicable.
 
However, there's a good reason nothing has been done and there isn't any public outcry.
 
Lewis is making a mountain out of a molehill...
 
Yes, high-frequency traders have a clear technological advantage. And they are making a bundle of money with it. But the effect on you and me is miniscule.
 
High-frequency traders are essentially vacuuming up nickels every day. They make tens of thousands of trades on millions of shares, gaining a penny advantage here and a two-penny advantage there.
 
You probably wouldn't blow your top if you discovered one day that a kid had grabbed the change out of the ashtray in your car. That's about the annual effect these guys have on your trade executions.
 
What's more, the extremely high level of volume they generate narrows the spread on thousands of stocks to as little as a penny a share. You could argue that their real net effect is to save you money.
 
However, if you find high-frequency trading alarming, there are three simple steps you can take to avoid it...
 
No. 1: Don't Day Trade
 
I would tell you this – as I did more than 15 years ago when this first became popular – even if high-frequency trading technology didn't exist.
 
Day trading is gambling, pure and simple. Over any decent period of time, share prices follow earnings. But in a single session, stock prices are a total crapshoot, moving up and down on all sorts of factors that are completely divorced from corporate fundamentals.
 
An ordinary investor who is repeatedly trading in and out of stocks during the day is playing a foolish guessing game. (And may even have a gambling problem.) The folks making dozens of trades a day are the ones most affected by tiny price manipulations.
 
If high-frequency traders caused you to give up your day-trading habit, thank them. They did you a big favor.
 
No. 2: Always Use a Limit Order
 
If a stock you want to buy is trading at $25.50, don't put in a market order and then act surprised when you get filled at $25.52. Put in a limit order at $25.50 and wait a few minutes. If you don't get filled immediately, the stock may be moving higher. So get another real-time quote, cancel your original order, and adjust your limit. You'll get filled.
 
If you use limit orders, high-frequency traders can't affect your execution price.
 
No. 3: Base Your Sell Decisions on Closing, Not Intraday, Prices
 
Flash crashes and high levels of intraday volatility caused me to stop recommending the use of intraday prices and stop orders.
 
It's a bit unsettling to see a stock open at $20, trade down to $16.50 and then close at $19.75.
 
Base your sell decisions on closing prices and no market maker or high-frequency trader can pick you off at the intraday low. There is a chance, of course, that stocks may close at the day's low. But you have eliminated the risk of getting knocked out in a volatile session before the market (or your stock) recovers.
 
In short, Lewis is wrong. The stock market isn't rigged. That's why there isn't any outrage. That's why no one has been prosecuted. That's why there haven't been any regulatory reforms.
 
Even if you're a skeptic – or a conspiracy theorist – follow the three steps I've outlined above and you won't have a reason to even imagine you've been wronged.
 
Good investing,
 
Alexander Green

Editor's note: Alexander recently told his subscribers about a technology firm that he believes has incredible upside from here. If you stick to these kinds of opportunities, you won't have to worry about high-frequency trading or getting taken advantage of in the markets. Learn more about this company in the presentation he recently put together by clicking here.

Source: http://www.dailywealth.com/3204/three-simple-steps-to-beat-a-rigged-stock-market

http://www.dailywealth.com

The DailyWealth Investment Philosophy: In a nutshell, my investment philosophy is this: Buy things of extraordinary value at a time when nobody else wants them. Then sell when people are willing to pay any price. You see, at DailyWealth, we believe most investors take way too much risk. Our mission is to show you how to avoid risky investments, and how to avoid what the average investor is doing. I believe that you can make a lot of money – and do it safely – by simply doing the opposite of what is most popular.

Customer Service: 1-888-261-2693 – Copyright 2013 Stansberry & Associates Investment Research. All Rights Reserved. Protected by copyright laws of the United States and international treaties. This e-letter may only be used pursuant to the subscription agreement and any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), in whole or in part, is strictly prohibited without the express written permission of Stansberry & Associates Investment Research, LLC. 1217 Saint Paul Street, Baltimore MD 21202

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in