[Nvesta81]

Quoted straight from the book:

"It is important to understand that the market-makers do not control the market. They are responding to
market conditions and taking advantage of opportunities presented to them. Where there is a window of
opportunity provided by market conditions – panic selling or thin trading – they may see the potential to
increase profits through price manipulation, but they can only do so if the market allows them to. You
must not therefore assume that market-makers control the markets. No individual trader or organisation
can control any but the most thinly traded of markets for any substantial period of time.
Market-makers are fully aware of the activities of trading syndicates and other professional operators that
place substantial orders. It therefore makes sense that they will take whatever opportunity is available to
better their own accounts accordingly."

A little information about what the book refers to as the 'herd' :

We have all heard of the term ‘resistance’, but what exactly is meant by this loosely used term? Well, in
the context of market mechanics, resistance to any up-move is caused by somebody selling the stock as
soon as a rally starts. In this case, the floating supply has not yet been removed. The act of selling into a
rally is bad news for higher prices. This is why the supply (resistance) has to be removed before a stock
can rally (rise in price).
Once an up-move does take place, then like sheep, all other traders will be inclined to follow. This concept
is normally referred to as ‘herd instinct’ (or crowd behaviour). As human beings, we are free to act
however we see fit, but when presented with danger or opportunity, most people act with surprising
predictability. It is this knowledge of crowd behaviour that helps the professional syndicate traders to
choose their moment to make a large profit. Make no mistake – professional traders are predatory beasts
and uninformed traders represent the symbolic ‘lamb to the slaughter’.
We shall return to the concept of ‘herd instinct’ again, but for now, consider the importance of this
phenomenon, and what it means to you as a trader. Unless the laws of human behaviour change, this
process will always be present in the financial markets. You must always try to be aware of ‘Herd
Instinct’.
There are only two main principles at work in the stock market, which will cause a market to turn. Both of
these principles will arrive in varying intensities producing larger or smaller moves:
1. The ‘herd’ will panic after observing substantial falls in a market (usually on bad news) and will
usually follow its instinct to sell. As a trader who is aware of crowd psychology, you must ask
yourself, “Are the trading syndicates and market-makers prepared to absorb the panic selling at these
price levels?” If they are, then this is a good sign that indicates market strength.
2. After substantial rises, the ‘herd’ will become annoyed at missing the up-move, and will rush in and
buy, usually on good news. This includes traders who already have long positions, and want more. At
this stage, you need to ask yourself, “Are the trading syndicates selling into the buying?” If so, then
this is a severe sign of weakness.
Does this mean that the dice is always loaded against you when you enter the market? Are you destined
always to be manipulated? Well, yes and no.
A professional trader isolates himself from the ‘herd’ and becomes a predator rather than a victim. He
understands and recognises the principles that drive the markets and refuses to be misled by good or bad
news, tips, advice, brokers, or well-meaning friends. When the market is being shaken-out on bad news, he
is in there buying. When the ‘herd’ is buying and the news is good, he is looking to sell.."