Glitches for Riches: Part I

This post is from my Substack, The Cash Rules. To receive more articles like this please subscribe. Read Part II here

These days, it seems like the key to online trading fame is posting a candlestick chart overloa

ded with so many indicators that it looks more like abstract art than anything actionable, paired with a flashy screenshot of a gloriously green PNL. It's no surprise, given how we’re constantly fed the idea that trading is all about speculating on where the market will go based on past chart patterns. But my idols follow a different mantra than these PNL-posting rockstar traders, believing less in cup and handle breakout candlestick patterns, and more in taking advantage of glitches in the market. They know that real trading edge comes not from guessing market moves, but from capitalizing on inefficiencies, malfunctions, mispricings, and arbitrage within the markets.

The core philosophy of these elite traders is simple: find edge. And the most effective way to do that is by adopting the mindset of a glitch trader. In this introduction, I’ll walk you through the basics of glitch trading in three parts. First, I'll share some examples of glitch trades to give you a solid foundation (a refresher for those who read my book). Next, I’ll guide you through how to identify and execute these strategies for yourself. And finally, I’ll be hosting a free live webinar (which will also be available for those who can't attend) to dive even deeper into glitch trading and glitch strategies—tentatively scheduled for November 24th. Ready to get started? Let’s jump in.

What is a glitch?

I came up with the word “glitch” to describe a malfunction, mispricing, arbitrage, or inefficiency within a market. Simply put, it’s “something that shouldn't be there.” Glitches debunk the efficient market theory, proving that any market is imperfect and can break or crack at any moment. 

What is glitch trading?

Glitch trading is a method of trading that aims to take advantage of these market glitches. The strategies that take advantage of these glitches don’t rely on speculation, technical or fundamental analysis, or hoping and praying that markets go up or down. “I think”, “I feel”, and “I hope” are the most dangerous phrases in trading, but you would never hear them uttered from the lips of a skilled glitch trader, instead the glitch trader operates mechanically and thinks of themselves not as some sly financial wizard who predicts the next move in markets, but as more of a hacker looking for ways to exploit what's broken in the markets. 

Who uses this method?

I have been a professional prop trader for 23 years, and the vast majority of my profits, and the profits of nearly every other successful trader I know, have come through taking advantage of glitches. Obviously, It’s hardly a secret; I talk to futures traders and options traders who rely on glitches, and the Cryptocurrency markets are teeming with glitch traders. And it’s not just the top prop firms that are capitalizing on glitches, but further up the food chain, giants like Citadel and Renaissance make billions automatizing these types of strategies. 

Why haven’t I heard of this style of trading before?

If the top prop, quant, and hedge funds are profiting, why are most retail traders unaware of this method? The main culprit is the sketchy world of trader education. The sources that most traders count on for their education would rather bombard their audience with hype and hyperbole on how to get filthy rich while trading some exotic candlestick pattern. In the last 15 years, I have seen traders that I know make 100s of millions of dollars executing strategies revolving around the opening and closing auctions on the stock exchanges, but I challenge you to find any “trader educational sources” touting these lucrative strategies. 

If these glitches offer the easiest path to riches, why are they a secret, and why are these strategies being trumpeted on Twitter and YouTube, and in trading books? Firstly, your favorite “guru” is probably not in on this secret. I hate to break the news, but many of these superstar traders aren’t as successful as they seem. I don’t want to paint the entire trader education space with the same brush because there are definitely some helpful resources out there; however, in a world where making millions is the sign of success, you have to be skeptical when a “successful” trader is busting their ass trying to sell a $50-per-month subscription service. 

Let’s assume that this “guru” is in on the secret and that pic of him driving the Lamborghini is legit, well then, it is against the “gurus” best interest to share the juicy details of a trading glitch. Crowds are kryptonite for most glitch strategies. The more people that know, the faster it disappears, and the good times end. Therefore, with a lucrative glitch strategy potentially bringing in hundreds of thousands, if not millions of dollars, it makes sense that a trader, or firm, in possession of such a strategy would focus on milking the strategy, not flogging it online and thus overcrowding the trade. 

What about the more traditional methods of trading?

While I firmly believe that these glitch strategies are the most efficient way for active traders to make money in the market, it is still imperative to have a grasp of the traditional fundamentals of trading, such as technical analysis, tape reading, trading psychology, and so on. Firstly, the trader needs this understanding to find and execute these glitch strategies. Without plenty of screen time, a firm understanding of market mechanics, and a strong head, a trader will typically fail even if they have been handed the keys to the kingdom. However, I will add a disclaimer that sometimes–on the rarest of occasions–these strategies have so much edge that I have even seen unskilled newbies make millions.

Secondly, these strategies are used most effectively in conjunction with traditional trading strategies because these glitches are fairly rare and often only briefly exist. It can take months to find one of these lucrative strategies, so backup streams of trading income are needed. Although I firmly believe glitch strategies offer a superior edge, it’s still quite possible to make plenty of money using more traditional strategies, and many traders do just that.

What are some examples of glitch strategies?

Bitcoin Arbitrage

This is my go-to example, not only because it’s simple and easy to explain, but because arbitrage is the holy grail of glitches, if not the whole world of trading. Arbitrage allows the trader to take advantage of price differences between different markets and exchanges–buy on one exchange at a low price, and sell on another for a higher price. Arbitrage has become tougher to find in today's electronic markets, but it was a lot easier to come by before automated trading took over. An excellent example was an inter-exchange arbitrage opportunity involving Bitcoin in 2017 and 2018.

The cryptocurrency markets were crazy at this time, and Bitcoin was prone to wild price fluctuations. Since Bitcoin isn’t traded on a centralized exchange, the insane action was spread among multiple exchanges. This market fragmentation proved to be very inefficient, resulting in huge price differences between exchanges, providing an environment ripe for opportunist arbitrage traders. It was as simple as buying Bitcoin on one exchange for perhaps $5000, and then transferring it to another exchange and selling at perhaps $5500. While simple and effective, there was a little risk. Sometimes it would take up to half an hour for the transfer to process, and during these wild times, there was a chance that the price could swing against you. However, if the price difference was big enough, it was definitely a risk worth taking.

The Hunger Games Strategy

This strategy is not only a great example of a glitch strategy, but it also illustrates how ruthless the trading business is. This strategy, which we could also call arbitrage, was my introduction to glitches and served as a baptism by fire into the world of trading.  

When I was starting out, all the separate exchanges that traded U.S stocks were not linked together like they are now, so on one exchange, a buyer might be trying to buy XYZ stock at $10.25, and then on another exchange, a sucker–sorry, I mean seller–might step in and try to sell XYZ at $10.00. It doesn’t take a genius to realize that this market fragmentation presents an opportunity for a skilled glitch trader, or arbitrager.

The savvy veteran traders at my first trading firm would wait for that sucker to offer XYZ stock at $10. They would quickly buy in and then immediately sell on the other exchange at $10.25, for a quick .25 cents of free cash. 

They were taking advantage of the exchange arbitrage to make these lucrative trades, but also of the inexperienced traders, such as myself, who were often supplying the bait. 

At the proprietary trading firm, Zone Trading (which is now Kershner Trading) in Austin, Texas, I sat together with the rest of the wide-eyed rookies on one side of a highly segregated office; on the other side sat the savvy veteran traders. Some of my first, but not fondest, memories of trading were watching those guys sitting frozen with their eyes glued to their gigantic old-school CRT monitors. Their itchy trigger fingers–which had been conditioned by countless kills while playing their favorite 1PP shooter games–would hover over their keyboards. 

We rookies would go about our business on our side, eagerly learning the ropes of our exciting new profession. Inevitably though, one of us would make a slip on the keyboard and place a bid or offer that was out of whack with the other exchanges, thus offering a juicy scrap for our “co-workers”. When that erroneous order would hit the exchange, a feeding frenzy would ensue. The thundering sound of fingers pounding on keyboards would wail from the veterans’ side, followed by an eerie silence and then a scream of agony from the hapless rookie trader who was caught in the trap.

This cruel game, where your supposed “teachers and mentors” preyed on your every mistake, provided quite an eye-opening introduction to the world of trading. However, I somehow survived this trial by fire, and I am proud to tell you that I never adopted this cold-blooded strategy when I became a veteran…mainly because I was way too slow on the keyboard to compete for the scraps.

Auction Order Strategy

By breaching the glitch-trader’s time-honored code of secrecy, and revealing this next strategy, I may incense a few of my peers. I’ll be careful not to divulge all the secrets, but I can’t talk about glitch strategies without mentioning the one strategy that has probably provided for at least half of the profits of every successful equity trader I have known over the last 20 years. It’s no surprise that this secret is guarded like the Crown jewels. In fact, when I mention the world of opening and closing auctions to traders outside my circle, I usually get a blank stare and expressions of shock that everyone isn’t making all their cash trading using fancy candlestick technical setups like the guy on the YouTube video brags about.

Auction strategies revolve around a single aggregated trade that happens at the open and close of the U.S. stock markets (NYSE and NASDAQ) in each individual stock. This auction is typically for the benefit of big players who want to buy, or dump, large quantities of shares. I won’t get too technical, but the goal is to build strategies that take advantage of this large aggregated twice-daily auction. I would encourage every equity trader to familiarize themselves with how these auctions work, not only because they offer ample trading opportunities, but also because they are an important part of the market structure. 

One great example happened right before Christmas in 2020, when Tesla was to be added to the S&P 500 index. This meant that millions of shares of Tesla would be bought by the numerous funds that mimic this index, and the last day for these funds to buy Tesla was on Friday, 18th December. Although these funds had weeks to buy shares before Tesla was added to the index, many waited until literally the last minute and used this closing auction to buy the remaining shares they needed. Therefore, with one minute left before the close of trading, the Nasdaq market indicated that there were 17 million more shares to be bought than to be sold (a buy imbalance) on this auction. 

Seconds before the close of trading, smart traders bought in at somewhere between $640 and $660, and then immediately offered (sold) their shares to this auction. Most of us auction veterans expected this to be a good trade, but we were blown away when the auction price was $695. These smart, and somewhat lucky traders had made around $50 per share in only a few seconds, and with just a couple of clicks of the mouse.

I should hold my hands up and say that I wasn’t one of them. I was a little frightened by the high price of Tesla and its volatility. To put it lightly, it was a decision I regretted when a couple of my peers made more money in those 30 seconds than I had made in the last 15 years of trading. Fortune favors the brave, I guess.

eBay Assassin

The glitch trading mindset can be adapted for ALL markets, and online marketplaces such as eBay offer ripe pickings for savvy traders. I have my own glitch story from the Polish version of Ebay. This humbling experience began when I inadvertently advertised some computer monitors for sale at a ridiculously low price. Within minutes of posting this ad, a buyer was at my door with a handful of cash and a cheeky smirk on his face. After the buyer split the scene of the crime with monitors in hand, I started to get a little suspicious, so minutes later I checked the website to see what similar monitors were being sold for, and to my shock and horror, saw my monitors back on the market at a 50% premium.

I compare this glitch hunter to those veterans who provided me with my introduction to glitches at that first office of mine. This guy who showed up at my door was using the same strategy as those parasites; look for an errand offer, hit it quickly, and get the hell out. This guy even had the balls to come to my own house. I have to admit that I was disappointed in being on the wrong side of the trade, but I wanted to congratulate him on one hell of a trade.

I could keep on listing glitch strategies: the airline flight that was mispriced at only $1 online, the wager that was placed before the bookie had time to update his odds after a major injury to the star quarterback, or the latest flash crash within the markets. There are opportunities out there everywhere for those who want to find them, though they usually disappear fast.

What if this style of trading doesn’t appeal to me?

You might say, “I’m not interested in trading like this, I want to be a proper trader who uses technical and fundamental analysis.” That’s fine, but I want to point out how the majority of successful traders I know make a big portion of their profits, and the type of strategies that we found offer the greatest edge. Ultimately, I want to open the reader's eyes to an approach to trading, i.e., buying and selling things, that is usually the most efficient method whether you are buying an S&P futures contract or a computer monitor.

Even if you prefer other forms of trading, the aim of the game is to make as much money as possible. My advice would be to follow the path that would give you the best chance of achieving that goal, especially as the luxury of consistently making money from your preferred style of trading is rarely afforded. 

Conclusion

In conclusion, glitch trading is not just a hidden gem for professional traders but a mindset shift—moving away from speculation and traditional analysis towards exploiting market inefficiencies and anomalies. Whether through arbitrage opportunities, auction strategies, or market fragmentation, the key to success lies in recognizing and acting on these fleeting glitches before they disappear. While traditional trading methods like technical analysis and fundamental research still play an essential role in a trader's toolkit, embracing the glitch trading mentality can offer a significant edge. Ultimately, the goal is simple: to maximize your trading profits by finding and capitalizing on inefficiencies, and glitch trading provides a powerful, often underutilized approach that allows traders to achieve just that. As with all methods, its effectiveness hinges on skill, timing, and the ability to adapt—traits that every trader can develop with the right mindset and discipline.

Gliches for Riches: Part II