How the operators operate in the market? How to avoid their traps while trading?

Markets are ruled by various forces – buyers, sellers, government policies, global geopolitical scenario, economic indicators, and, of course, ‘market operators’. These operators act as institutional investors, fund houses, big traders, and the like. Understand how these powerful forces operate in the market and how you can avoid falling into their traps is quintessential to a successful trading journey.


What Are Market Operators?

Market operators are individual traders, entities, or institutions that have the ability to influence the price of a security on the stock market considerably. These entities, either alone or in a group, possess large amounts of money and can create artificial supply and demand in the market.

For instance, they can push a low priced stock to very high levels by manipulating the demand process, and then suddenly sell-off, causing a drastic fall in price, known as a pump and dump.


How Do They Operate?

Market operators usually engage in manipulating market prices to create artificial market situations. They typically target the stocks of small or mid-sized companies, which require less capital to manipulate.

Operators usually start by purchasing large volumes of a stock, driving its price up. This sudden surge in price attracts regular traders, who join the buying frenzy, pushing the price higher. Once the price is high, the operators start selling off the stocks at a heavy profit. The sudden selling triggers panic among regular traders, who then sell their stocks in a rush, causing the prices to collapse drastically.

How To Detect Market Manipulation?

Identifying the signs of market manipulation can be challenging due to the camouflaged operations of market operators. However, here are a few signs that might help:

1. **Unusual trading volumes**: Higher than average trading volumes can signal an operation to manipulate a stock’s price.

2. **Sharp price movements**: Abrupt and unusual price changes, especially in smaller stocks, could be a sign of an impending pump and dump strategy.

3. **Sudden news or rumors**: Watch out for sudden positive news or rumors about a company, especially if it appears suspicious or unverifiable.

Avoiding Market Operator Traps

Investing or trading based solely on market speculation or price momentum, and neglecting the fundamentals of the company, has led many traders into the traps laid by market operators. To avoid these traps, these strategies may be useful:

1. **Analyse the fundamentals**: Look into the company’s balance sheet, income statement, cash flow statement, and research on their management team. Stocks with solid fundamentals are less likely to be manipulated by operators.

2. **Follow the institutional investors**: Institutions follow a research-based approach to investing. Stocks without institutional ownership are more likely to be targeted by operators.

3. **Market orders**: Place limit orders rather than market orders. This will prevent you from buying at inflated prices.

4. **Diversification**: It protects the investment portfolio against volatility. Don’t invest all your money in one stock or sector.

Understanding the behaviors of market operators can go a long way in safeguarding you from potential financial hazards. It empowers you to formulate a well-informed trading strategy that attentively observes market anomalies and responds to them judiciously.

Remember, in trading, there’s no shortcut to quick gains. Patience, constant learning, and calculated decisions are the key to success!