The Magical World of Glitch Trading

The word "glitch" might conjure up images of Neo dodging bullets in "The Matrix", or perhaps bring back memories of playing a poorly produced video game. My version of a glitch has nothing to do with malfunctioning video games but describes a malfunction, mispricing, arbitrage, or inefficiency within the markets. Simply put, in my lexicon, a glitch is “something that shouldn't be there.” Glitches prove that markets aren’t efficient, and that they do often break, crack or leak. When the markets “break”, it’s truly the most efficient time to make money. Lots of money.

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.

This world of glitches seems secretive, but most traders are usually well versed in legendary glitch trading tales such as the one about the Essex oil traders who took advantage of a crash in oil prices to the tune of $700 million in 2020 https://www.ft.com/content/304b03cc-f5fa-4c36-b60b-5641cb199ef9. It is a textbook example of a glitch trade; the market broke, the price of oil went negative, then these young men saw the glitch, stepped in and made tens of millions each. Another epic glitch trading tale happened just upriver from Essex and involved one of my trading heroes, Nav Sarao. Nav made hundreds of millions preying on glitches in the futures markets while trading out his bedroom in his parent’s house. Nav was so good at his job, that he ultimately became the fall guy for the Flash Crash of 2010. The book Flash Crash, by Liam Vaughan does a great job telling this story. The legendary GameStop short squeeze of 2021 is one more sensational example of what I would call a glitch.

Stories like these provide inspiration for all traders, but why don’t the masses follow these lessons and do things the easier, more efficient, and more lucrative way? 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 personally 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 spending all their time on social media and 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, just like it would have been against my own best interest to tell anyone else about the glitch on the horse racing arcade game, 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.

The battle is against other traders and algorithms, which are all trying to get a piece of a pie that is continually shrinking in size. Therefore, with a lucrative glitch strategy potentially bringing in hundreds of thousands, if not millions of dollars, it makes sense that a trader in possession of such a strategy would focus on milking the strategy, not flogging it online and thus overcrowding the trade.

I was lucky enough to start my trading career in an office teeming with glitch hunters, but not surprisingly, my coworkers were quite guarded with their winning strategies. I still got the gist of where the “easy money” was, and–after $40,000 in initial losses–I finally got the hang of it and have never since turned my back on these wonderful strategies that have provided me with the meat of my trading profits. This office of mine wasn’t, and isn’t, the only one in on the secret. I know of many offices packed full of traders doing things the easy way and gobbling up the profits provided by glitches. What’s more, the giant high-frequency trading and quantitative hedge funds glitch hunt on an industrial scale. They don’t just gobble, they truly gorge themselves. Firms such as Citadel and Renaissance make billions in automatizing these types of strategies.

These glitches are not just available to equity traders, but are waiting to be exploited in all markets. I talk to futures traders and options traders who rely on glitches, and the Cryptocurrency markets were kind enough to provide me with one of my most efficient strategies. It’s not only financial traders feasting, eBay and similar marketplaces are also teeming with glitch hunters looking for suckers, and I personally proved that finding a glitch at a casino can literally be child's play.

Once the door has been opened to this magical world and the trader grasps the true potential of these types of strategies, the next step is the radical adjustment of the trading mindset. Delusions of grandeur about being part of the world of high finance must be swept aside; most efficient day traders are akin to scavengers, picking up the scraps that big players leave behind.

I want to express that–while I firmly believe that these glitch strategies are the most efficient way for active traders to make money in the markets–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. Although, I will add a disclaimer that sometimes–on the rarest of occasions–these strategies have so much edge that even an unskilled newbie can make millions; Yes, I have seen it happen.

Secondly, these strategies are used most effectively in conjunction with traditional trading strategies because these glitches are 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. Of course it is possible to make plenty of money using more traditional strategies, and many traders do just that, but my goal here is to open your eyes to an additional set of strategies that can offer a far superior edge when executed properly.

You might reject this mission, and say, “I’m not interested in trading like this, I want to be a proper trader who relies on 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 more “glamorous” 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.

For part two of your glitch education, read my book, and check out my "Classic Glitch Strategies" blog entry for examples of some famous glitch strategies from the past.