Market Manipulation in Emerging Markets and Technical Indicators

It is generally accepted that market manipulation is more prevalent in a number of the emerging markets. For example a lot of research has been done into the China’s stock exchange and the evidence seems to suggest there is considerably more market manipulation being undertaken than in certain Western stock markets. The same can be said of the stock exchanges of some of the Eastern Bloc countries since the fall of communism in the late 80’s to early 90’s. 

These countries are in a transitional state and often corruption is higher than in many other countries. There is also a lack of institutional and governmental oversight which makes the threat of punishment seem very less real. Also for example in Russia those who wish to pursue insider trading face minimal punishment if they are caught, however Russia has been stepping up its game greatly in this regard in recent years. Though the situation is still far from perfect. 

For many the idea of engaging in markets where there is significant financial fraud would be enough to put individuals of trading the stocks and indices of such markets. But in fact there are some people who feel they can take advantage of the market manipulation at play, without engaging in financial fraud.  

How so? Well a number of studies have shown that the effectiveness of simple technical indicators such as moving averages is far greater than in markets which are taken to have less market manipulation. The idea is that obvious wide ranging market manipulation can be picked up relatively effectively with the use of various technical indicators, allowing for an individual make money trading particular stocks without engaging in any such market manipulation themselves as they are trading with publicly available information.   

However there impediments for this approach for many small derivative traders. The majority of CFD, Spread betting and Binary companies do not offer the ability to trade the stocks on these markets. And those that do often prevent short selling, however the strategy could still theoretically work. 

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