You've probably heard of an ancient Chinese book called "The Art of War" written by Sun Tzu in the 5th century. Although it was designed to explain military strategy its also very popular as a text for how to succeed in the business world.
A key principle in the book is about deception, here is what it says:
All warfare is based on deception. Hence, when we are able to attack, we must seem unable; when using our forces, we must appear inactive; when we are near, we must make the enemy believe we are far away; when far away, we must make him believe we are near.
Many view the public markets as a war, a battle between longs and short...dah bulls versus the bears. I also view it as a David and Goliath struggle pitting small retailers against big industry players. A war between the lunch bucket crowd logged into discount brokerage accounts on one side, pitted against an army of market professionals. And unlike the Biblical account where David slays the giant, in the market game its the Goliaths that usually win.
And one reason they're able to win in my opinion? Deception.
When a retail player logs in with their discount broker and places a limit order, either a buy or a sell...BING, it pops up on the order book and can be seen on L-II. Maybe you've checked it yourself. You decide to place a buy order for my favorite fictional stock, ABC which show 10 lots on the bid at $2.00 and 10 lots on the ask for $2.10. You put in a bid for 10 lots at $2.05 and...BING...you see your 10 lot order pop up on Level II as the highest bid.
When a Goliath puts an order in however, he has some other options, one of which is an "iceberg" order.
What is an iceberg order? With a real iceberg floating in the ocean, you can only see a small potion of the ice, most of it is hidden below the water line. With an iceberg order a large player can have 10 lots showing at the bid at say $2.00, but another 1,000 lots on the bid at the same price, but hidden from view.
Why would someone want to hide their interest in buying? Pretty simple and obvious. The big player doesn't want everyone knowing that they have major interest in a stock. After all, if the big buyer thinks $2.00 is a good price for ABC and everyone sees a massive order for 1,000 lots (that's 100,0000 shares) on Level II, then those selling might think...."Damn, maybe something is coming, maybe I should hold on...or maybe even buy some more".
And the same thing works when selling. Rather than "advertise" that he wants to dump 100,000 shares after ABC has climbed to $10, instead the iceberg is used on the sell side, with only 10 lots showing and the rest hidden.
If you pay attention to message boards for a stock that's getting a big run you've probably seen messages like: "Only 10 lots available at $10, once those get taken out this is gonna fly"!!! It happens all the time....usually in tandem with some bullish news combined with promotion and lots of hype.
The game is deceptive, but also necessary I would argue, otherwise there wouldn't be fortunes to be made, and of course it follows.....fortunes to be lost. Its a zero sum game and not everyone can win, some will get shares while others get cash. And knowing about the deceptive games is still only half the battle, there are so many traps designed to ensnare the naive and greedy that no retailer no matter how good can win all the time.....just try to win more often than you lose and don't be shy about taking profits in my opinion.
And that goes double when you're dealing with shares in a company that is losing money currently but promising big things down the road.....all too often the road stretches out forever and is littered with freshly printed shares.
Good luck.
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