Question

Hi Anna, I’ve read your book ‘A Complete Guide to Volume Price Analysis’, and I appreciate very much a different perspective you offered from which we look at the markets.In order to bring those fresh knowledge into daily investment study practices, I’m continuing practicing volume-price interpretation with real-life market data, as well as researching more on the nature of market makers. As a stock market investor, I’m wondering if market makers inventories are visible in a public company’s ‘major shareholders list’, or their possessions of shares are not counted as institutional ownership? Thank you!

Answer

Hi – First of all many apologies for the delay in replying, but your email ended up in my spam folder and I have only just discovered it as I was clearing it out – so many many apologies. Thank you so much for investing in my books and thank you too for your very kind comments which are much appreciated, and I will do my best to answer your question if I can which is an interesting one.

The market makers themselves do not appear anywhere directly, as they are not shareholders as such, since they are simply there to literally make a market. However, they do buy shares on their own account which may be in a nominee account or through a third party which will hide their activity. So the short answer is no, but this also leads on to another aspect of stock trading which relates to something called floating supply. This is the total number of shares available for buying and selling, in other words roughly what the market maker has sitting on their books. If the floating supply is high, then the price is likely to rise, since the market makers will be looking to mark prices higher in order to clear down their inventory profitably. They do this using the simple mechanism of the news, drawing in buyers on good news and marking the market higher. Equally if the floating supply is low then market makers will drive the market lower to build up inventory. Once again, the media is the primary tool, with bad news stories panicking investors into selling quickly.

In many ways, it is this constant movement between supply and demand as managed by the market makers which drives the markets. As the floating supply decreases and reaches a point where the market makers are running out of inventory, this is the point at which a selling climax starts in preparation for a move lower, in order to fill the warehouse once again. Equally, once the floating supply is high, or the warehouse is full if you like, the market makers can then start marking prices higher once again. Float analysis is a topic in itself, and indeed is one I will be covering in my next book on stock trading and investing which is due for publication in Q1 next year. I hope the above helps and you will be pleased to know that I am in the process of writing a new book on volume price analysis. This will contain many worked examples to explain all the principles across all the markets, something which many readers have been asking me to write for some time. Once again many thanks for writing and thank you for your patience, and wishing you continues success in your trading Kind regards – Anna