Avoid the Pitfalls and Market Maker Tricks

After listening to several radio interviews of a few traders who used to work on Wall Street, I have a better understanding of the market and important pitfalls to avoid.  It is important to know that there are a lot of sharks in the water waiting for inexperienced an emotional traders to make irrational and quick decisions.  However, that does not mean that you can’t make any money in the market.  The opposite is true.  You can make a good living trading in the markets, you just have to be smart and know how and what to trade.  

One key piece of information I just learned from a guy who used to be on the NASDAQ was that market makers (the guy at your brokerage house) will watch people’s trades and look to see where most people place there stop loss price and some unscrupulous guys will move the price just beyond the point to where the majority of stop loss orders are and trigger the stop loss so they can take their commission.  For the trader who’s gone golfing and not watching his trade, he will lose money plus the commission he paid to the market maker.  

This just underlines the point that you can’t trade blindly and not watch your trades.  You also have be patient and wait for the proper setups so you don’t get caught waiting on the market to move.  The best way to engage this current market is to be either long term buying high yield dividend stocks or very short term, trading the market swings for only a day or so.  

There's another thing you have to watch out for as well and that's the penny stock sharks.  These guys will put messages all over the place about a particular stock that trades below one dollar.  They will talk about how this is the best stock of the year and it is going to go sky high.  However, they don't have any information that lets you know why.  What about this stock is so great that it is going to be the hot stock of the year?  The problem is that you can't get detailed information on many of these stocks because company data is harder to come by for penny stocks.  So just use common sense in these situations.  If someone tried to sell you something saying that it is the best thing in the world, but didn't have any information on the product, would you buy it?  I think not.