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Market maker thoughts on figuring his position

Update (6/15/2008)  The market maker has a wicked control on the market, and should show good profits as GS reports this week along with private firms like Scottrade Securities.)  Market moves with conviction, and revaluation as we find real terms.  I still think beer first, get high 2nd, and lover; then kiss your neighbor if he wants peace; kill your neighbor if he wants war!

At the bottom or top of any market their are lots of sellers (at the bottom) and lots of buyers (at the top) so the market maker is taking the other side of the market and it is in his interest when things get to an extream in any time frame to  go the other way of trader psychology. 

 

 

In the shortest of time frames the market maker is on the other side of any trade that is placed when he can not match orders for a buyer, and seller.   The computer algorithm or market maker is in charge of setting a buy, and sell price for the market regardless if there is a buyer or a seller.   If someone makes a block trade larger than the size of the market you will often see the stock make a print that is outside the offered bid and ask.  Well now you know someone has made a transaction for that amount of shares on the buy side if it was higher, and on the sell side if it was lower.  The market maker has made a deal to take on a larger transaction  at slight discount or premium to the market.  

A successful openings only strategy I learned from Bright Trading is buying or selling major stocks on the New York stock exchange when a stock gaps open outside of a normal trading range.  You could use this strategy on any market; but, Bright felt the other markets were two unpredictable.  Say MER gaps opens 5% higher tomorrow in the morning you could short the stock, and have a trade with a positive expectation.  In theory going on the side of the market maker (the specialist as they call it).  If it gapped lower they would go long the stock looking to exit the trade with in thirty minutes to gain a small amount of money.  In theory the market maker has  alot more buys than sells  at the open on a gap higher so naturally it is in the market makers interest if those people leave the trade with a loss, and if he has other people taking the other side of the trade.  So routinley the stock will trend back towards the mean at least for a quick time to exit with a profit.

 

January 11, 2008 - Posted by | Stock investing links, ideas, and opinions. | , , , , , , , , , , , , ,

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