"I'm going to tell you all kinds of lies to get you to believe me; and that's the truth, the whole truth and nothing but the truth"…
Market manipulation is a byproduct of mind manipulation. It is ludicrous to believe that anyone who would manipulate the markets would not first engage in mind manipulation. This is especially true when doing so enhances the chances of establishing and maintaining positive control to bring about certain behaviors. It is the first priority in any confidence scheme or deception operation. It is Tradecraft at the highest levels. Tradecraft is a general term that denotes a skill acquired through experience in a clandestine trade. The term is also used within the military and intelligence communities as a collective word for the techniques used in modern espionage. It is also the basic underlying premise of my thesis which is: the market should be viewed from the perspective of an intelligence analyst evaluating covert operations.
The investor who believes he controls his own behavior in the market can be very much mistaken. The triggering mechanism for almost everything he does and does not do in the markets is substantially influenced by the exchange. According to Sun Tzu - Art of War "It is as important to know what not to do and when not to do it, as it is to know what to do and when to do it."
When Pavlov rang his bell the dogs salivated because they had been conditioned to associate the bell with food. Pavlovian conditioning has since been recognized as the basic force underlying human behavior. Highly competent authorities in the field of human behavior are of the opinion (which I share) that an individual's behavior can be successfully controlled and manipulated and for the most part the individual behaves mechanically. The media, advertisers, governments and financial institutions are aware of this and they exploit it as much as possible. In addition, they know that if a lie is repeated enough it becomes more credible albeit no more truthful.
The entire industry attempts to control investor behavior in the market. Surprisingly it is not that difficult to do inasmuch as investors are reactive beings. Presented with a stimulus such as rising prices or falling prices and he will surly react. Moreover, his reaction will usually be the same, time and time again. In addition, the same stimulus will usually produce the same reaction. This is why the stock exchange is able to predict with certainty, what investors will do when they raise and lower prices. Without exception they will buy on rising prices and sell in a decline.
Every newspaper and media outlet bombards the investing public with the fictions of the exchange which eventually form the basis of the public's thinking about the market. Ultimately, it is the control over stock prices which gives the exchange its greatest control over investor behavior.
There does not exist in the entire world a more important aspect to successful investing than the investor's mindset. The Ancient Greek Temple Delta had the credo KNOW THYSELF engraved on the archway leading to the oracle chamber. It is a concept as relevant today as it was then. For it is the inquiring, rather than the creative mind, the comprehensive rather than the specialized approach and the reactive rather than the proactive mind that prevails.
Never assume that by being proactive you can take the bull by the horns without being gored. Be reactive rather than proactive. Unless you trade on the floor of the exchange you need to play defensively. To do otherwise is to overstate your own relevance to the market. Just to be clear, when I refer to "playing defensively" I am not referring to buying a defensive stock, such as Proctor & Gamble (NYSE:PG) in a slowing economic climate. I am suggesting that investors wait for Insiders to make the first move and jump on their side of the trade.
Nevertheless, it is amazing how many successful business types and successful professionals are abject failures in market investing. They cannot fathom someone else being in control or the extent of that control. Perhaps it is because the primary components of their character which lead to their success in the first place are out of phase with market investing. They believe that being proactive has always worked so why not now.
Metaphorically speaking in terms of boxing you need to "bob and weave", "stick and move" because going toe to toe with the exchange will result in the average investor being KNOCKED OUT COLD. The Designated Market Maker (formerly known as Specialist) is the undisputed undefeated heavyweight champion of the exchange and he won't ever be defeated.
Unfortunately, truth in and of itself is rarely enough to cause people to act. Hence the step is always long from cognition to volition and from knowledge to ability. It is emotion that moves people and markets. Successful investors maintain equanimity and keep their emotions in check.
That's it for now…have a nice day...