does price manipulation break standard methods of TA?

[Its About Sharing]

I basically got out of the stock trading business back in 2002 or so as the manipulation of the markets was just becoming annoying. It made the TA just too complicated. It was like a matrix that pulled you in deeper and deeper.

Some manipulation:
For years now the Fed has been pumping money into the stock market.
For years now the Fed (or some banks there of) have been "leasing" the gold in the bullion banks to suppress the price of gold.  In addition they sell tons in puts against gold.
The list goes on but those are three of the big ones as examples. Interesting enough, manipulation eventually catches up with you. The Fed selling those puts might bring the price of gold down, but when it pops it will pop lounder.

Anyway, as you get deeper into TA (and have an understanding of fundamentals) you really start to see the manipulation. I'm no longer the expert though. You start to say more often "What? That doesn't make any sense."

But the short answer is that price manipulation really does kill or at least twist TA. It depends on how they do it and the form of manipulation. If the manipulation is at all regular (pumping money into the markets), it then becomes a part of TA (just like fundamentals do).

I really really hope they do not allow shorting of bitcoin. Look at what it has done to the gold markets (The Fed sold 500 tons of puts in one or two days before the latest gold "crash" two weeks ago or so). If we make shorting allowed (and some sites like MtGox inevitably will), BTC will be open to manipulation of price. That said, when you only have 11 million shares, the manipulators will probably not have the last say.

It's About Sharing

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[Odalv]

I basically got out of the stock trading business back in 2002 or so as the manipulation of the markets was just becoming annoying. It made the TA just too complicated. It was like a matrix that pulled you in deeper and deeper.

Some manipulation:
For years now the Fed has been pumping money into the stock market.
For years now the Fed (or some banks there of) have been "leasing" the gold in the bullion banks to suppress the price of gold.  In addition they sell tons in puts against gold.
The list goes on but those are three of the big ones as examples. Interesting enough, manipulation eventually catches up with you. The Fed selling those puts might bring the price of gold down, but when it pops it will pop lounder.

Anyway, as you get deeper into TA (and have an understanding of fundamentals) you really start to see the manipulation. I'm no longer the expert though. You start to say more often "What? That doesn't make any sense."

But the short answer is that price manipulation really does kill or at least twist TA. It depends on how they do it and the form of manipulation. If the manipulation is at all regular (pumping money into the markets), it then becomes a part of TA (just like fundamentals do).

I really really hope they do not allow shorting of bitcoin. Look at what it has done to the gold markets (The Fed sold 500 tons of puts in one or two days before the latest gold "crash" two weeks ago or so). If we make shorting allowed (and some sites like MtGox inevitably will), BTC will be open to manipulation of price. That said, when you only have 11 million shares, the manipulators will probably not have the last say.

It's About Sharing

I think, you have not to afraid. Simply remove your Bitcoins from GOX and move them to your wallet. They cannot sell what they do not own.

[ajk]

Perhaps the game was not meant for you

it is Kill or be killed in this world and unless you are hungrier and more soul-less than the guy next to you your going to lose

we do not live in a communist country where we share everything sorry to say. (not that sorry though because communism is barbaric and holds back innovation)

and to comment above

what would that have to do with anything? the price does not move only on your action there are others in this market as well

[Odalv]

Perhaps the game was not meant for you

it is Kill or be killed in this world and unless you are hungrier and more soul-less than the guy next to you your going to lose

we do not live in a communist country where we share everything sorry to say.

and to comment above

what would that have to do with anything? the price does not move only on your action there are others in this market as well

I'm not sure if I understand. But (gox)PRICE of btc is not same as FUNDAMENTAL VALUE of btc. If someone wish to sell at "single/double" number then he is welcome I'll buy. (this will stop soon, there are only 11M btc now)

[ajk]

You probably dont understand alot of things,

the person probably doesnt hold any bitcoins considering they are talking about how they cant stand market manipulation

you told him to move his coins off gox because he said that inevitably they will allow shorting (I agree that gox will allow shorting not to your dumb comment) what would moving his coins have to do with anything? which was the advice you told him

now you are speaking of fundamental value when I said nothing about this,

[Odalv]

You probably dont understand alot of things,

the person probably doesnt hold any bitcoins considering they are talking about how they cant stand market manipulation

you told him to move his coins off gox because he said that inevitably they will allow shorting (I agree that gox will allow shorting not to your dumb comment) what would moving his coins have to do with anything? which was the advice you told him

now you are speaking of fundamental value when I said nothing about this,

:-) lol. There are a lot of feelings but only few words (same word have different meaning for other).  Someone is afraid of "naked shorting" and other want shorting. ( and I'm drunk:-) ) ... Let's talk about TA is BS or not.

EDIT: PM's TA is BS or not :-)
EDIT2: because he thinks .. " following a trend has a better profit/risk ratio than manipulating a trend, on average."

[ajk]

TA probably works on real world markets, bitcoin is an experiment hence why I think TA doesnt apply here

nothing TA has ever seen can compare itself to bitcoin, its innovative, new, and it works

I use charts everyday with my trading but if you have to ask me what has made me more money in the long run, Fundamentals hands down

you know who is rich off TA? ask S3032 dudes probably made a good bit selling his information like all good tech analysts should be doing

[Odalv]

TA probably works on real world markets, bitcoin is an experiment hence why I think TA doesnt apply here

nothing TA has ever seen can compare itself to bitcoin, its innovative, new, and it works

I use charts everyday with my trading but if you have to ask me what has made me more money in the long run, Fundamentals hands down

you know who is rich off TA? ask S3032 dudes probably made a good bit selling his information like all good tech analysts should be doing

TA taking manipulation into account may be useful. I have not read any from S3032 (except price may FALL or RISE)

[arepo]

y'all better read the OP an' shit before just postin' whatever....

so much OT ITT. not a single person challenged my hypothesis, and only one person even mentioned it in two pages

oh well...

--arepo

[Odalv]

y'all better read the OP an' shit before just postin' whatever....

so much OT ITT. not a single person challenged my hypothesis, and only one person even mentioned it in two pages

oh well...

--arepo

please explain "OT ITT"

EDIT: show me 2 calls  => SELL @265, BUY @51 (and no BS inside interval)

[molecular]

I really really hope they do not allow shorting of bitcoin. Look at what it has done to the gold markets (The Fed sold 500 tons of puts in one or two days before the latest gold "crash" two weeks ago or so). If we make shorting allowed (and some sites like MtGox inevitably will), BTC will be open to manipulation of price. That said, when you only have 11 million shares, the manipulators will probably not have the last say.

What are you talking about. "They"?

You can already short bitcoin. Just borrow some and sell them. On bitfinex for example.

It's not like "they" (anyone) are going to be able to establish a a paper market on top of bitcoin. The "London Bitcoin Fix", lol.

[elux]

y'all better read the OP an' shit before just postin' whatever....

so much OT ITT. not a single person challenged my hypothesis, and only one person even mentioned it in two pages

So, back on topic then.

First: Much (well, almost all, by weight) of what passes for "analysis" on this forum is horseshit.
⇒ Made after the trader-analyst has made his call, opened his position.
⇒ Non-NPOW: Chiefly aimed at directly manipulating sentiment in the desired direction.
⇒ "The analysis" gets stitched-on as an afterthought.
(Much to be said about this, but discussing worthless analysis at length seems a waste.)

With that out of the way, let's continue...

You write:

[ I ] Barring 'crazy' actors, TA can accurately account for underlying trends in price data.

[ II ]
(a): While some traders can be considered 'eccentric', direct manipulation is risky and can often incur loss,.
(b): A rational actor with a large sum will make 'TA-appropriate' moves (following from our assumption) to maximize gain.

[ III ] Following a trend has a better profit/risk ratio than manipulating a trend, on average.

In brief,

I: Replace "accurately" with "mostly". Also: Do not disregard crazy!*

II: (a) is trivially true. (b) is a difficult question and a dangerous assumption.**

III: In the long term and on average, yes. (The would-be manipulator should aim to initiate trends,
nudge the market in the desired direction, and, if at all possible, only in the absence of opposing or dominant trends.)

(Not much of a challenge yet... I have some pages of notes confronting your claims,
I think your claims are interesting, partially sound, but with plenty of caveats and a number of counter-examples to be found.)

*The Bitcoin markets are crazy in more ways than one.
To name two examples, they are crazy small, on the scale of 'real' markets, and
10% of Bitcoins in circulation may at some point have been misappropriated.

**I thought II(b) was likely wrong, (should in any case not be lightly granted.)
But, It seems most of the counter-examples I had in mind could easily be
based on fundamentals, or simply bold, high-risk trades, quite in line with technical analysis.

[arepo]

*The Bitcoin markets are crazy many ways one.
To name two examples, they are crazy small, on the scale of 'real' markets, and
10% of Bitcoins in circulation may at some point have been misappropriated.

**I thought II(b) was likely wrong, (should in any case not be lightly granted.)
But, It seems most of the counter-examples I had in mind could easily be
based on fundamentals, or simply bold, high-risk trades, quite in line with technical analysis.

don't mean to disregard crazy, [ I ] was meant to be an assumption -- we must first assume that TA 'works' before we can discuss if some actors can break its methods.

as for [II]b, that is really the pith and point of this thread. Is there any case in which a rational actor with manipulative potential would make a move that breaks these methods? I can imagine an irrational actor doing so, but only at a loss.

--arepo

[elux]

don't mean to disregard crazy, [ I ] was meant to be an assumption -- we must first assume that TA 'works' before we can discuss if some actors can break its methods.

Mhm. (That's where I was trying to get to, starting from some simple rules, with "Bitcoin", an n-player, zero sum game.)

(Some forms of technical analysis have some predictive power, and can be employed to make money in some markets,
specifically those markets that have some set of properties, which may or may not apply to Bitcoin, and perhaps only under some conditions, and here are the reasons.)

It's complicated... but TA can be a valid and valuable form of analysis. (Otherwise it would be a losing strategy in major markets and it isn't.)

Corollary: Saying outright that all TA is stupid is stupid.

Which is not to say that:

• Elliot Wave theory or any other particular method of TA isn't stupid.
• Or that any particular analysis is sound or will make you money, only that TA can be used to win. (Better than even odds.)

(Mentioned because some people here dispute the validity of TA in general, and I was unsure, so I thought I'd try to answer the question for my self.)

as for [II]b, that is really the pith and point of this thread.

Yep.

Is there any case in which a rational actor with manipulative potential would make a move that breaks these methods?

I can imagine an irrational actor doing so, but only at a loss.

Is this not begging the question?

Sounds like:

If manipulation loses, the manipulation attempt was irrational, and should not occur. Whereas if it succeeds it was rational.
And perhaps, such "manipulation" is just what anyone should do under the same conditions, hence not "manipulation" in the first place?

Is there any case in which a rational actor with manipulative potential would make a move that breaks these methods?

I imagine that there is. (Will hopefully get to this, in detail, with examples.)

One salient albeit indirect example:

1: You unload Bitcoins. DDOS MtGox. You predict price will fall. Wait for price to fall.
2: Outlook and sentiment change as a result of your actions. (VWAP, volume, support/resist, moving averages, etc.)
3: You buy more BTC back cheaper. (At some target price, well below daily VWAP.)
4: Wait for market sentiment to recover. Repeat as desired.

Generally, you try to:

Make a move, (any move, by any means) - such as posting technical analysis on a public forum - that will (you predict) change market sentiment,
preferrably near some critical point, and leverage the resulting actions of other traders to achieve some better-than-linear effect on the market.

Which could result in:

Making your, or any, technical analysis (way) less reliable, if (the risk of) "manipulation" is not properly accounted for.

With regards to TA, I suspect that manipulation attempts, successful or not, can ONLY be accounted for if
the effects of historical and similar manipulation attempts are reflected (recorded) in the market data of the time window you're analyzing,
AND the frequency, outcome and effect size accurately reflects the actual outcome, frequency and effect of future manipulation attempts.

This should hold even if the manipulation attempt is not "Place limit order for X BTC here" or "Sell X BTC here" to affect some set of indicators in a so-and-such manner,
but perhaps instead "Let's DDOS MtGox today, see what happens."

[redwraith]

Standard markets (upon which TA was developed) aren't as susceptible to price manipulation. Remember, paper gold crashed from $15** to $13**, not $15** to $400. And when HFT glitches happen, the market is right back to normal once the bot operators realize what happened. Bitcoin has some very concentrated positions and not much liquidity.

On top of that, it is a true 24 hour global market - this is practically unparalleled. There are few markets that can be said to come close to this. Most global markets are 9-5-ish in each area of the world and some are closed on weekends. So downward price movement does not have 16 hours every single day to cool down in each locale. I am not overestimating the impact of this, I am just stating it as a factor worthy of consideration.

Seeing as TA and its associated patterns/shapes/voodooism was built upon markets with far more liquidity, far more down-time in each locale, and relatively less concentrated positions, not to mention better infrastructure, it makes sense that one would adjust one's TA to allow for far more volatility and general "weird shit." To what extent these factors effectively "break TA"... I have no idea. I guess we'll just have to find out!

Full disclosure: I know absolutely nothing about TA and am just talking out of my ass.   

BitcoinAshley, you're smart.  I like the way you think.

[elux]

i see that. there's been a whole lot of questionable price action on gox these days....

i'm starting to regret so many people knowing about bitcoin -- it always attracts the worst first  

lag >7 min now, most definitely directly because of this.

You can try to predict the actions of the masses with some success but not the action of 1 or 2 people and that's all it takes to move things considerably in this market.

again, the basis of my argument against the perceived 'absolute power' or manipulators, or even just traders with large amounts of capital proportional to the market cap, is that the self-regulating nature of the market makes direct price manipulation proportionally expensive to its magnitude.

this being said, it shouldn't necessarily "break" the various methods of TA. for instance, it's interesting that the large move was timed perfectly with the triangle consolidation. these moves are more predictable than you think.

Does it not seem like certain tactics, unpredictable from a TA framework, which we may call price manipulation:

1: Can allow a trader to incite movement with disproportional effect relative to the cause.
2: Will tend to play out in a predictable direction. (To the manipulator, yet unpredictable from TA),
3: Can be executed / set in motion at a specific and particularly suitable time. (Known to the manipulator, unknowable* to the market at large).
4: Results in changing market conditions which impact the data relevant to technical analysis, often invalidating previous analysis.
5: Plays out in a such a manner that post-fact analysis will "agree" with the manipulator, especially after the rest of the market has started chasing the manipulator**, causing players*** to agree with and, react to the movement of the manipulator, joining the manipulator in the same direction as the initial movement.****

6: That this can cause the cost of initiating the tactic (which might otherwise be prohibitive) to be greatly discounted by knock-on effects of some market participants "piling on" to an initial movement, joining the manipulator which predictably (how predictable?) leads to a cascade/amplification effect.
7: That such a cascade/amplification effect brings the cost of manipulation down, and adds to the reward of manipulation.
8: That such a cascade/amplification effect tends to benefit "the leader", but comes at a cost to "the followers."
9: That initial followers of the "manipulator" stands to benefit, "ahead of the pack" followers benefit some, "average" followers benefit none, and "later than average" followers being hurt.
10: That knowledge of such an effect can prime the market, creating further incentive to be among the initial followers, amplyfying cascade effect, if similar events were to reoccur.

11: That all of the above is consistent with a notion of "rational" manipulation tactics (and a small number of rational initial "followers".)
12: And also, a greater number of irrational "lemmings", giving chase to their disadvantage.
13: That since TA is a delayed reaction (immediate changes taking time to propagate into the data) The technical analysts,  as well as those that follow them, are at greater risk of ending up among the "lemmings" if and when such events do in fact occur.



Note: This picture assumes a single manipulator entity, which is unlikely in practice, or if it were so, is unlikely to be stable, since other agents will pick up on and try to emulate any successful tactic, which creates competition between would-be-manipulators, which complitates the course of events for everyone, and should perhaps be anticipated to lead to a reversion to normality as the market matures. However, there would be windows and moments of time where manipulation tactics remain profitable.

This currently seems to be the case. If and when manipulation tactics seize to be profitable (to the manipulators and the early followers),
or those who would be lemmings recognize that they missed their window, and are being lead to jump up a cliff,
we predict that such manipulation tactics should be diminished in effect and frequency, or stop all-together.


* Unknowable in the details. General features can be anticipated,  <<justification-of-this-point-goes-here>> A discussion of this point could be worthwhile.
** Which they should, as can be argued. (So long as they are quick enough to be among the first to respond.)
*** Humans, bots, algorithms, technical analysis -- as well as the heuristics on which all of those rely to make BUY/SELL/NO ACTION decisions.)
**** Initially, at the start of the motion, first wave of re-action is almost always in the same direction as the initiating action,
however, if the attempt is partially or wholly unsuccessful, things get... complicated.

yes, i was watching, and it was clear that the dump was a single or a few entities, not an emergent movement. there's a lot of bearish news in the air, and the market is short-term overbought. i'm trying to determine if we should expect $120 to hold, or if we're gearing up for a correction-to-the-correction of the bullish move to $165. i highly suspect these individuals were attempting to 'paint the tape', as a very bullish consolidation turned very suddenly into a very bearish picture. this event will be good to consider in another problem i'm working on, can/does price manipulation break standard methods of TA?.

Thoughts?

[arepo]

2: Will tend to play out in a predictable direction. (To the manipulator, yet unpredictable from TA),

i appreciate the fullness of your response, and i have been keeping this question in the back of my head since i opened the thread. more deliberation and analysis needs to be done before i can honestly respond to your many other hypotheses. but for now, this one sticking point:

i opened this thread with the hypothesis that "TA-appropriate moves" maximize the profit/risk equation. you've brought up many good points why this may not be the case.

however, the quoted point above speaks to a very important feature of this problem, that is the feature of the information that the players have.

we all can agree, i hope, that the manipulator does not know, with any certainty, how the market will react to his attempt at manipulation. the best he can do, just like every other participant, is to guess. doesn't this alone invalidate all theories of direct price manipulation?

--arepo

[elux]

2: Will tend to play out in a predictable direction. (To the manipulator, yet unpredictable from TA),

sticking point:

i opened this thread with the hypothesis that "TA-appropriate moves" maximize the profit/risk equation. you've brought up many good points why this may not be the case.

however, the quoted point above speaks to a very important feature of this problem, that is the feature of the information that the players have.

we all can agree, i hope, that the manipulator does not know, with any certainty, how the market will react to his attempt at manipulation.
the best he can do, just like every other participant, is to guess. doesn't this alone invalidate all theories of direct price manipulation?

Doesn't this alone invalidate all theories against direct price manipulation:

At 1:07 p.m. on Tuesday, the Twitter feed of the Associated Press told us that Barack Obama had been injured in an explosion at the White House.

The tweet was fake — the product of a hack — but given the events in Boston last week, the news spread like wildfire, garnering more that 4,000 retweets.

The AP quickly addressed the situation, suspending its Twitter account, and alerting readers through associated accounts that the tweet describing an explosion at the White House was the result of a hack.  

No harm, no foul, right?

Well, not exactly. According to the Financial Times, that one tweet sent shock waves through the stock market —
causing the S&P 500 to decline 0.9% — enough to wipe out $130 billion in stock value in a matter of seconds.

Source: http://business.time.com/2013/04/24/how-does-one-fake-tweet-cause-a-stock-market-crash/

I would bet that the people behind this trick correctly anticipated the direction of the reaction. And also that there would be a reversal.

I would bet against them knowing with certainty the extent of the reaction or the precise timing of the reversal.

I would bet that what small edge they did have (such as advance knowledge, timing) was sufficient.

You can say "but you don't know that" and you'd be right. And you'd be a right fool too.  

[elux]

We have some important questions remaining:

• Is it possible to correctly anticipate the direction of the market reaction to brief "unanticipated" market events and/or external news?
• Is the same possible for someone who has full advance knowledge of the otherwise unanticipated  event/external news?
• Is it possible to reliably predict the magnitude or extent of the reaction to some particular event or piece of new information?

I very strongly suspect the answer is yes the first two questions, especially the second, and likely no to the third.

For some particular events you can "reliably" anticipate the direction of the resulting action.
(More often than not, and also often enough to be profitable by a good margin.)

Tricky points to prove. I suspect behavioral economics already has the answers. I'll see what I can find.


Next... Fear and Surprise or how to Exploit Neuroeconomics for Market Manipulation...

Whether you want to directly manipulate the price, or you use some external events, such as,
for example "DDOSing Mt.Gox" attacks or the "Associated Press, Twitter hack",
You want to pull of your manipulation event so that the market has a very little time to react,
you want to force each player to make a decision to either "abandon ship" or "get on board",
before they have time to calmly and reasonably analyze the situation.

In either case you attempt to trigger the fear response:
If "news" news: the fear of holding the bag.
If "good" news: the fear of getting left behind.

[To be cont'd...]

[elux]

Case study:

Guys, it's only a 1000btc wall... It's not trying to manipulate or anything, he just wants to sell, poor him...

You may be right, as his wall is being nibbled on quite a bit.   I find it surprising that selling pressure is so low that hardly any asks are being placed beneath it.  
He has to know if he backed the wall to 105, he would end up with $5k more . . .   Strange not to at this point unless he is trying to manipulate, very odd.

He's setting up a triangle. 104 is the center-line.

Used 0.01 add/rem bidspamming to quench volume of the uptrend. (Lag hovered at 1-2 minutes during insignificant price action.)

(Visible on Clark Moody if you check "Show Depth Messages in Console.")

Placed the top wall to force creation of the triangle, placed the mid wall to contain it, and lastly the lower wall to finish it.

You can see it for yourself in DougTanner's wallpic:

THAT 1000BTC wall was just eaten.

Impossibruuuu!
Didn't you understand? This wall was manipulation! You can't just go and eat him!  

Of course you can eat a manipulation wall, if you do it in one big bite.    This wall was acting different however, and I am pretty sure he just wanted to sell, though he could have made several more thousand if he wanted, not smart.

Someone bought out the lower wall. Brand new 15K BTC ask wall appears at 130.

Effect on bid/ask spread: