Predator Mentality

[Tradewinds 12]

Does predatory activity happen in the market all the time? Does a predatory mindset help in trading?

 

I think that adapting a mentality of being ruthless, predatory, opportunistic and stalking your "prey" may help some people be more successful at trading. I get the impression that some traders take on this mentality, and this point of view as a strategy to put themselves into a mental state that helps them to be more objective and disciplined in their trading.

 

I'm not saying it doesn't work. And I'm not saying that I wouldn't, sort of, engage in those things myself when trading. I guess I would practice opportunistic and "predatory" strategies in the sense that it will make a profit.

 

Is this view of trading good in the long term? Can it affect your life outside of trading? Is it morally right or wrong?

 

Personally, I have a mixture of feelings about the whole investment industry, how it works, who it benefits, and what the implications are for the predators and the victims.

 

But let's hear what you have to say.

[MightyMouse 12]

Does predatory activity happen in the market all the time? Does a predatory mindset help in trading?

 

I think that adapting a mentality of being ruthless, predatory, opportunistic and stalking your "prey" may help some people be more successful at trading. I get the impression that some traders take on this mentality, and this point of view as a strategy to put themselves into a mental state that helps them to be more objective and disciplined in their trading.

 

I'm not saying it doesn't work. And I'm not saying that I wouldn't, sort of, engage in those things myself when trading. I guess I would practice opportunistic and "predatory" strategies in the sense that it will make a profit.

 

Is this view of trading good in the long term? Can it affect your life outside of trading? Is it morally right or wrong?

 

Personally, I have a mixture of feelings about the whole investment industry, how it works, who it benefits, and what the implications are for the predators and the victims.

 

But let's hear what you have to say.

 

It is perfectly natural. As long as you are not breaking rules, then there is nothing wrong with it, since if you are not breaking the rules, you are playing by them.

 

Is it morally right? Is it morally right for you to lose money in the market to someone who knows how to take it from you? So, is it wrong if you take money from others that are less skilled at trading than you?

 

In nature you do not see a cheetah stalking the largest, meatiest animal; instead, it stalks the youngest and weakest.

 

MM

[Tradewinds 12]

As long as you are not breaking rules, then there is nothing wrong with it, since if you are not breaking the rules, you are playing by them.

 

Rules are not inherently right. There have been plenty of people, groups, governments and rulers that have made some very bad rules. There are good rules, there are bad rules. Right at this moment, I'm not saying that the rules governing the markets or trading are good or bad. I'm saying that there needs to be a deeper look at good and bad, moral or not moral, than just looking at the rules alone.

[Tradewinds 12]

In nature you do not see a cheetah stalking the largest, meatiest animal; instead, it stalks the youngest and weakest.

MM

 

This is true. And in the animal world, that system works very well. The natural world is a system of overcompensation to balance out high attrition. Many of the young, weak and sick need to killed off, and eaten, or the population would go out of control.

 

The human population is growing out of control. When lemmings overpopulate, they all run over a cliff into the sea and die. Human's do find innovate and better weapons to kill each other off. But we are also keeping more and more people alive with better standards of living and modern medicine. Plagues and wars killed off large percentages of the population in the past, but we haven't had any big plagues lately.

 

Trading is a system of high attrition, but it doesn't kill off large percentages of the population. "Feeding" off the young and the weak in the investment markets doesn't solve the overpopulation problem.

 

If people who make a lot of money in the investment world, are genetically superior, then they should have more children in order to keep the genetic pool healthy. But it seems like poor people have more children. So that isn't working.

 

The system of killing and eating the weak and the young in the animal world keeps things in balance. I'm not sure that the investment industry is keeping the world in a healthy balance.

[steve46 12]

Depending on your emotional needs and maturity an agressive attitude toward the market may help some participants..... In my office we go about business in a subdued manner. We expect to make money (otherwise you are gone)...At this level the participants view the market as a puzzle to be solved within a limited amount of time....we're expected to get it right in time for the market open....if we do that (and most of the time we do) then there is a congratulatory moment at the end of the day...but thats it, because we know that each day is just a dot in the (yearly) distribution, and you're expected to come back and do it again the next day....if you plan to be in this business over the long run, it may be advisable to maintain a more consistent and low stress emotional mindset during market hours.

 

Good luck

Edited March 14, 2011 by steve46

[Tradewinds 12]

if you plan to be in this business over the long run, it may be advisable to maintain a more consistent and low stress emotional mindset during market hours.

Good luck

 

So my question is, does the predator mentality cause more stress or less stress? I suppose a predator mentality could mask stress, or be a very strong counter balance against it. But masking something doesn't make it go away, and counter balances can swing wildly the other way.

[zdo 20]

One of the pivotal ‘moments’ of my trading development was when it clicked at an operational level that trading is best seen as “Predator vs Predator” (zdo) instead of predator vs prey….

Direct side benefit - instantaneous resolution of the largest part of those mostly enculturation based ‘moral’ issues …

OP it’s excellent that you’re confronting this. Many traders never even get into awareness of how that enculturation is conditioning/limiting their trading…as you get to know them you can start picking up the subtle suppressions diverting and wasting their energies…

hth

[steve46 12]

So my question is, does the predator mentality cause more stress or less stress? I suppose a predator mentality could mask stress, or be a very strong counter balance against it. But masking something doesn't make it go away, and counter balances can swing wildly the other way.

 

Sir or Madam

 

I think the answer to your question is that it depends on the individual (as I stated in my original comment).

Personally I don't know what else I could add that would help you....I believe that a professional orientation is helpful because I see it every day....of course there are bound to be exceptions..another way of putting it is, that I tend to be agressive in terms of ability to tolerate risk, to put on size in the market and in terms of looking for opportunity....I was trained to be agressive with respect to those elements of trading....otherwise I tend to be more thoughtful and subdued in my approach....I notice that some very successful individuals have a similar orientation to the market.... I leave it to others to decide which approach works best..

 

Good luck

[Tradewinds 12]

I think the answer to your question is that it depends on the individual

 

I think it also depends on how good a person's strategy is. If a trader aggressively executes the worst strategy in the world, then aggressiveness doesn't help. Even predators avoid being injured at all cost. Predators don't like getting kicked in the head or speared by the horns of a herbivore.

[Tradewinds 12]

One of the pivotal ‘moments’ of my trading development was when it clicked at an operational level that trading is best seen as “Predator vs Predator” (zdo) instead of predator vs prey….

hth

 

Good point. Bears will take over a kill that wolves have taken down. If the bear is big enough, and at the prime of it's life, a whole pack of wolves may not even dare to challenge one single bear.

 

I'm not necessarily convinced that the whole animal world vs. trading is an accurate analogy, but maybe it does serve some purpose.

[Tradewinds 12]

I tend to be agressive in terms of ability to tolerate risk, to put on size in the market and in terms of looking for opportunity....I was trained to be agressive with respect to those elements of trading

 

Thank you for describing what being aggressive really means to you in terms of trading. The first thing you mentioned was risk toleration. One thing I find ironic in the market, is that what most people may initially or intuitively perceive as risk, in reality may be very little risk at all, and in fact be the best opportunity.

 

For example, price dropping very hard. That may be the bottom. Not necessarily, but it happens quite often. If a trader is looking to go long, you may want to "catch a falling knife". That phrase "catch a falling knife" is something that many traders use as an analogy that implies terrible danger. But it may actually be the least dangerous situation, depending upon the situation.

 

Some people like fire breathing, sword swallowing and lion taming. And people will pay them to do it. :rofl:

 

So, my point is this. What typically is defined as "risk" by the general public, may just be opportunity for a trader. The market rewards risk. It's a risk/reward system. So being aggressive towards risk tolerance, may be consciously forcing oneself to go against the "natural" perception of what risk in the market is.

[steve46 12]

There are two very basic issues that professionals must learn, either the "hard way" or the "easy way"....

One is that there is a unmistakable relationship between the effort a person puts out and the rewards they reap in the market.

Two is that there is an unbreakable relationship between risk and reward, and in order to survive in the markets one must learn how to characterize risk accurately and how to manage it effectively.

For those few of you who really want to transform your lives, I suggest you take a moment and look around your neighborhoods...go to the nicest most expensive neighborhoods near you and look carefully at how those people live....look at the cars they drive at the clothes they wear, drive by the shopping malls they frequent and the restuarants they eat at...and ask yourself, "is this the kind of life I want"? "Do I want to be free of the concern for money..."

The fact is there are few people willing to put in effort necessary to really be successful at this or any profession for that matter. They say they want it, but when push comes to shove, are unwilling to do what it takes to get there.

Read Jack Schwager's books and notice that there are only a few who really "make it" and even those few have volatile careers. Often that is because early in their lives, before they learned these few "truths", they took unecessary risks, or were beneficiaries of simple random good luck...then at some point, things reversed and they "blew out" their accounts....(there are quite a few stories of folks who lost fortunes several times over before learning the most important lessons...just think back to Jesse Livermore).

Personally I would prefer not to leave my career to chance....I think a person can learn these few important lessons by researching and learning about careers of these unusual folks....

Finally I am sure (because it happened to me) that one can find a good mentor and good education, and with a little perserverance and hard work, get to their financial goals.

 

Best of luck in the markets

Steve

[Tradewinds 12]

In order for some traders to unfairly profit from other traders, there would need to be a way to manipulate the market. The market reacts to news and earnings reports. Those two influences on the market can't really be manipulated unless there is insider knowledge. I'm not saying that insider trading might not happen, but it would need to be happening on a large scale. I doubt that is the case.

 

So my point is, in order for "predation" to occur, the markets would need to be manipulated. If the market is an unbiased entity, that always returns to a fair valuation, then it's kind of difficult to manipulate it in the longer term. Day to day, and minute to minute trading is a little different I think.

[MightyMouse 12]

In order for some traders to unfairly profit from other traders, there would need to be a way to manipulate the market. The market reacts to news and earnings reports. Those two influences on the market can't really be manipulated unless there is insider knowledge. I'm not saying that insider trading might not happen, but it would need to be happening on a large scale. I doubt that is the case.

 

So my point is, in order for "predation" to occur, the markets would need to be manipulated. If the market is an unbiased entity, that always returns to a fair valuation, then it's kind of difficult to manipulate it in the longer term. Day to day, and minute to minute trading is a little different I think.

 

On any give day, in any given market, look at the depth of market. From time to time you will see the bid side with far more bids than the ask side and at other times you will see the ask side with far more offers than the bid side. Intuitively, you would guess that if the bid side has more size, then there are more people bidding and there is more demand and price should be rising when there is more demand. Likewise when the Offer side is stacked you would assume that meant that there is more people wanting to sell and price should be falling.

 

What is actually happening when the bid is stacked is that traders are trying to sell, and they put large size up on the bid hoping that impatient buyers who want to buy will enter at the market and fill the sellers limit orders. The end result is that the seller receives a better price than he would if he would have sold at the market. The buyer pays slightly more for being impatient. Its a similar story for traders who want to buy. The put large size up on the offer and hope that someone who sees the large size that wants to sell, will sell at market and right into the buyers standing limit order to buy.

 

If someone puts up size on the bid and has no intentions of buying and is in fact selling and his sole purpose of putting up size on the bid was to lure traders into buying at market so their standing limit sell orders would get filled on the inside, is that manipulation?

[Tradewinds 12]

On any give day, in any given market, look at the depth of market. From time to time you will see the bid side with far more bids than the ask side and at other times you will see the ask side with far more offers than the bid side. Intuitively, you would guess that if the bid side has more size, then there are more people bidding and there is more demand and price should be rising when there is more demand. Likewise when the Offer side is stacked you would assume that meant that there is more people wanting to sell and price should be falling.

 

What is actually happening when the bid is stacked is that traders are trying to sell, and they put large size up on the bid hoping that impatient buyers who want to buy will enter at the market and fill the sellers limit orders. The end result is that the seller receives a better price than he would if he would have sold at the market. The buyer pays slightly more for being impatient. Its a similar story for traders who want to buy. The put large size up on the offer and hope that someone who sees the large size that wants to sell, will sell at market and right into the buyers standing limit order to buy.

 

If someone puts up size on the bid and has no intentions of buying and is in fact selling and his sole purpose of putting up size on the bid was to lure traders into buying at market so their standing limit sell orders would get filled on the inside, is that manipulation?

 

Well, I think we would need to make a distinction between what is manipulation, and what is just people trying to get the price they want.

 

Here is an analogy: If I were selling an automobile, and the book value was $5,000 but I convinced someone to pay $10,000 for it, I would call that manipulation. My daughter bought a car a few months ago for $4,000. It ran for 2 weeks. The mechanic put $2,000 dollars worth of parts and labor into it. It still wouldn't run. So $6,000 was spent on a car that is worthless. That's price manipulation.

 

It's all about fair value vs. what is paid. Day traders don't calculate fair value. (Maybe some traders do have a way to calculate fair value. I don't know. I don't.)

 

If you are a trader, and your trend line tells you the trend is going up, it doesn't tell you that this security might be worthless. So unless you are a long term value investor who really knows the company and the management, there is a lot of speculation about what the future value is going to be. It's a very murky situation.

 

In the case of the $5,000 car sold for $10,000, the price markup was 200% percent. The bid and ask orders you are talking about probably don't have a markup anywhere near that. So, on the surface, I wouldn't call it manipulation. If it's done, knowing that there are unsuspecting traders who don't know what the real value is, and it is intentionally done as a deceptive act, then it's mild price manipulation. I'm not sure how something like that would be regulated or stopped. Besides, there might be big buyers and sellers who are not worried about the same price ranges that a day trader is looking at. They might be looking at longer term holdings, and are not that concerned with the price movement caused by level two orders over the course of a few minutes.

[MightyMouse 12]

Well, I think we would need to make a distinction between what is manipulation, and what is just people trying to get the price they want.

 

Here is an analogy: If I were selling an automobile, and the book value was $5,000 but I convinced someone to pay $10,000 for it, I would call that manipulation. My daughter bought a car a few months ago for $4,000. It ran for 2 weeks. The mechanic put $2,000 dollars worth of parts and labor into it. It still wouldn't run. So $6,000 was spent on a car that is worthless. That's price manipulation.

 

It's all about fair value vs. what is paid. Day traders don't calculate fair value. (Maybe some traders do have a way to calculate fair value. I don't know. I don't.)

 

If you are a trader, and your trend line tells you the trend is going up, it doesn't tell you that this security might be worthless. So unless you are a long term value investor who really knows the company and the management, there is a lot of speculation about what the future value is going to be. It's a very murky situation.

 

In the case of the $5,000 car sold for $10,000, the price markup was 200% percent. The bid and ask orders you are talking about probably don't have a markup anywhere near that. So, on the surface, I wouldn't call it manipulation. If it's done, knowing that there are unsuspecting traders who don't know what the real value is, and it is intentionally done as a deceptive act, then it's mild price manipulation. I'm not sure how something like that would be regulated or stopped. Besides, there might be big buyers and sellers who are not worried about the same price ranges that a day trader is looking at. They might be looking at longer term holdings, and are not that concerned with the price movement caused by level two orders over the course of a few minutes.

 

Either is fair game. You do not have to sell or buy a security if you do not want to in the market and if you bring money to the market, you should be wise enough to understand how the market participants attempt to get the best price for themselves. You do not have to buy or sell, you can walk away.

 

When you approach a person selling a car, you have every right to check the car over before you buy it to assess whether you want to pay $10k for it. If you do decide to pay 10k for it, that is not price manipulation, it is very good salesmanship if that car is actually only worth $5k. If the individual does not want to let you check it over, then you should walk away.

 

In trading it is our decision that gets us in or gets us out. The market is constantly advertising both sides, attempting to sell us on why it is a good time to act. If we buy the BS, then we probably will end up with a lemon, just like the car buyer.

 

MM

[Tradewinds 12]

Either is fair game. You do not have to sell or buy a security if you do not want to in the market and if you bring money to the market, you should be wise enough to understand how the market participants attempt to get the best price for themselves. You do not have to buy or sell, you can walk away.

 

When you approach a person selling a car, you have every right to check the car over before you buy it to assess whether you want to pay $10k for it. If you do decide to pay 10k for it, that is not price manipulation, it is very good salesmanship if that car is actually only worth $5k. If the individual does not want to let you check it over, then you should walk away.

 

In trading it is our decision that gets us in or gets us out. The market is constantly advertising both sides, attempting to sell us on why it is a good time to act. If we buy the BS, then we probably will end up with a lemon, just like the car buyer.

 

MM

 

Is there any situation that you would call price manipulation? Because I get the impression, that you are saying there is never such a thing as price manipulation. That price manipulation is totally non-existent. Are you implying that there is no such thing as price manipulation?

 

Actually, I could technically agree to that, depending upon how "price manipulation" is defined.

 

Now we are getting deeper into the details and meaning "price manipulation", predator mentality, and what should be allowed or not allowed. And it's not just about trading.

 

I guess what you are saying, is that the deciding factor, is a person's freedom to make the choice or not. If someone held a gun to my head, and said, "You WILL pay $10,000 dollars for this car that is not worth more than $5,000, or I will shoot you in the head." then would it be price manipulation? The person handing over the money, had a severely overwhelming influence to make a decision a certain way. However, even with a gun to your head, and the threat of death, technically, the person paying the $10,000 for the $5,000 car was still making a decision of their own free will. They just might die for their decision. So even in that case, you could say it's not price manipulation, because they could choose to die. I just want to make it very clear to people reading this, that what I just described is not my perspective or mentality towards the situation. I'm trying to point out a possible view point as a way to define, and compare and contrast different perspectives.

 

It's the age old question of "where do you draw the line?". Where I draw the line is: "If it promotes long term, sustainable and constructive behavior, then it's good." The intentions and desires of selling a $5,000 car for $10,000 does not promote long term constructive behavior. There is a high probability that it will cause hardship, difficulty, anger, feelings of injustice, feelings of revenge, hatred and conflict. So far, situations like selling a $5,000 car for $10,000 haven't stopped the world from turning, or caused the human race to go into decline, or disappear. The case could actually be made, that predation and excessive gains at another person's expense, is actually good for the long term survival of the human race. Kill off and suppress some of the population for the greater good. Unfortunately, things like predation, usury, exploitation, manipulation and abuse don't seem to be forecasting a very good end to the human race. Ultimately, it's not going to end well.

Edited March 17, 2011 by Tradewinds

[SIUYA 11]

interesting side note on market manipulation....

at most exchanges its deemed inappropriate or out right illegal. Putting in false bids and offers (spoofing) to lure people into trading. Many operators and brokers have been pulled up on that by the regulators.

 

However if you look at the recent advances in algorithmic trading thats is exactly what they are generally designed to do....flush out orders and snip snip snip between them.....and yet the exchanges dont seem to think that this is market manipulation.

 

From an old school perspective, and many of my colleagues agree....its exactly the same. Its just that in the old days the operator was a human, and now its a computer.

 

However on saying that, I dont watch volume, I dont care about the numbers of buyers and sellers showing as I know that the market is formed only by the price action of the trades.....and so the market manipulation side of it is irrelevant to me. My view is if you are showing in the market and are live then it irrelvant until you trade.....ever had the problem of being in the cue and not getting set at the low, even though it traded there....?

potential means nothing, deal with the reality.

 

(This also ties in with my ideas of the market that they can go up and down based on a lack of traders on the other side - sort of like a vacuum. (others say the same things but in different ways)

example; trading the SPI (Australian equity market futures index) look at a 1 min chart recently. Even though the market has been going down the last week, the index often fell slowly, and yet got sucked up very quickly - say 30 mins to fall 30 ticks, and then rallied back 20 ticks in 4 mins.)

[tradelab 10]

A mentality characterized by a lack of individual decision-making or thoughtfulness, causing people to think and act in the same way as the majority of those around them. In finance, a predator instinct would relate to instances in which individuals gravitate to the same or similar investments, based almost solely on the fact that many others are investing in those stocks. The fear of regret of missing out on a good investment is often a driving force behind herd instinct.

[stefcio2002 10]

Does predatory activity happen in the market all the time? Does a predatory mindset help in trading?

 

I think that adapting a mentality of being ruthless, predatory, opportunistic and stalking your "prey" may help some people be more successful at trading. I get the impression that some traders take on this mentality, and this point of view as a strategy to put themselves into a mental state that helps them to be more objective and disciplined in their trading.

 

I'm not saying it doesn't work. And I'm not saying that I wouldn't, sort of, engage in those things myself when trading. I guess I would practice opportunistic and "predatory" strategies in the sense that it will make a profit.

 

Is this view of trading good in the long term? Can it affect your life outside of trading? Is it morally right or wrong?

 

Personally, I have a mixture of feelings about the whole investment industry, how it works, who it benefits, and what the implications are for the predators and the victims.

 

But let's hear what you have to say.

 

I remember someone advising me to trade as a crocodile, meaning a predator will wait for a sure catch and will not try to run everytime a protential prey is around. Spare your strength (account) because it costs everytime you use it.

[flowzen 10]

I remember someone advising me to trade as a crocodile, meaning a predator will wait for a sure catch and will not try to run everytime a protential prey is around. Spare your strength (account) because it costs everytime you use it.

I can't remember the actual statistic from National Geographic, but they still miss something like 75% of the time.