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Excerpts from the upcoming JJ-Vwaptrader1 book – describing his “Wild Days as a Market Maker”

Chapter: The Bloodhound

The US markets move fast, every day is an opportunity for a proper villain to rob you blind.

When you give a promoter stock to do a job you are handing him the fate of your deal.  Most of the time he will create a market to sell your stock off into, sell it, blame someone else such as short-sellers for depressing the price of your stock, and walk away from you.  This leaves the financier penniless having to either go clean up the market or walk away from the deal.

A bad criminal will simply take the stock and blow it out into the market.   It’s obvious and in Vancouver, it can get you killed.  The bad criminal just moves on to the next deal, he will usually deal with unsophisticated financiers and public company CEOs.   Since the criminal used offshore accounts, for the company robbed there is no recourse.   The bad criminal will hopefully have the good sense to not take stock of scary people.

A proper villain will put the stock in an account that the financier or CEO will be able to see.  This gives the CEO a sense of security due to transparency.  When he starts his operation and starts selling stock into the market the position that his employer sees will be unchanged.

As the price of the stock moves violently about, the villain will cause a huge stink, saying that he hasn’t sold a share, you can see it plain as day. “ You must have given out stock to someone else.” He will say to the CEO.  

He will completely manipulate the market.  He will show large sell orders coming in.  He will say he has $100 thousand dollars of buying coming in to clean up the market. 

When he does bring in the buy order it will actually be his.  He will sell into it from his account at another brokerage firm.  The stock will not move up.    The villain will then call the CEO and scream that someone is selling stock and his investors are getting burned.

He will do this a few times,  then he will call and say my investor is really upset. You better send him some stock to average down his price.  The CEO will then send millions of more free shares to an account that appears to be owned by a regular person.   It will show all the buy transactions in it.  The CEO will assume this is a legitimate investor.   This account will be a nominee for the villain.  Now he has even more stock in your deal.  This can happen a few times until the CEO finally gives up.  The result is that his stock will be well under a penny and he will have to do some major corporate shuffling to rebuild it.  Most of them walk away.  The investors or dumb money always get burned and are left holding WORTHLESS PAPER.  

Now the big villains don’t operate this way.  They own everything,  They are at economic risk because they pay for everything.  From the initial company, the legal the accounting.  Everything is a risk.  Then they stage a full-blown promotional campaign selling their own stock into it.  

They will use the proceeds of this to build larger and better campaigns.  This is what the good promoters do.  They own the entire deal and never give away any stock.  They pay cash for all goods and services.  They do this because they know that 0 cost stock.  Stock that has been given away has a no-cost basis.  It will always “find the bid” meaning it will always get sold at any time.


This ruins a market when you are trying to induce buying from the retail public.  Nothing scares a prospective investor more than seeing a stock go down every day.  There is no reason to buy it.   Retail investors love to see a stock going up every day. Or at least trading in a stable range.

But to get the frenzy going, to get people to chase the price higher, you must own every share and keep moving it up higher and higher.  This causes people’s greed to take over and buy it.  Surely it will keep going higher.

Good villains will build and develop a large market they can sell stock into.  They will do it over 18 to 24 months.  When finished they will have 20 to 100 million dollars to show for it.  

Now for you folks at home, this is nothing new.   It has been done since the dawn of trading.

The way stock is traded.  The actual mechanics of the market are so complex to an outsider that we literally can trade a billion dollars of stock around someone and they have no idea where it’s coming from or going to.  

Sound familiar? Look at a stock like Amazon, it just keeps going higher and higher.  The stock is very very tightly controlled by institutions,  The stock also is in limited supply.  You keep the supply tight and keep increasing demand.  Price goes up and as it goes up it induces more buying.   This is basic human nature.  People get greedy and keep buying it as it keeps producing a profit. 

 Now the people that control stocks like Amazon are huge money management firms and hedge funds.  Think of them as the financier or stock promoter.  They invest in the company usually at a discount to the market.  They set the offering price in the IPO (when the company goes public).  They place the stock with investors who they know will HOLD it for a long period of time.  This way no stock “comes back” into the market and depresses the price.

If you doubt any of this.  Take a look at the monthly stock chart of Amazon.  Take a look at the earnings of the company.  Now, remember the large money managers own Amazon for 30 year hold times, therefore, limiting the supply of stock in the open market.  There is no manipulation here but the result is similar to shutting off supply by a large shareholder in a penny stock deal.

The reason the stock keeps going up is that the three largest money management firms on the planet own the largest positions and because they manage over 14 TRILLION dollars.  

The stock chart for Amazon is a stock promoter’s dream.  It is the mother of all no supply situations

So now you know that everything is controlled you will understand why someone who understands the boring details of how the mechanics could be useful.  

The guys in the Ferraris are the flash.  The big money in the markets is made by guys you would never ever suspect.  They work in the shadows, they understand every little detail of how the system works, they then strategize on how to use those details to manipulate the price of shares.  We called them mechanics.   They were very rare and most of them always worked alone.  The details of their operations were therefore secret, this way no one could step in front of their orders to buy and sell.

How did I learn their ways? These people don’t go to bars, they don’t talk.  They take their secrets to the grave with them.  They live under the radar, drive Volvos and live in modest homes.  Meanwhile, they can literally have billions located in a rat’s nest of offshore accounts circumnavigating the globe.

I looked around and saw some traders and clients who were very calm when the prices of their shares rose.  The first time I saw this was on the desk at my firm.   

Here’s what I witnessed and it would change the way I think about the markets forever.

It Happened One Day when one of Elliott’s clients came into town from Miami the man was an ex-market maker he punched out of the brokerage business and now was freelancing working for Elliott’s largest client. His job was to maintain an orderly market for all of the companies that Elliott’s client consulted for.  

The man came into Elliot’s office and literally took over his trader and all their phones. Also, he pulled out a few cellphones and started making calls and instruction Steve the trader to start moving orders in and out of various stocks.  As Steve did so the phones would light up with reports from the market makers on what had been executed. Steve would verbally call out those fills to Miami and he would bark back adjustments.  “Ok move NITE up give NAIB 2k on that offer, then move WDCO back off the bid” and it would go on.  He was moving market makers around like chess pieces, only playing 6 different games simultaneously as he was making the market look a certain way in six different companies at the same time.

It was like watching Walter Payton play running back, I knew this is what I had to learn.

If you like to hear more of these “tales from JJ’s past” he teaches and trades live at http://www.Microefutures.com / http://www.EquitiesETC.com

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