These are the secrets of your losses that no one tells you!
Who is the market maker?
The market maker or "market maker" is an entity (which can be an institution or an individual) that provides liquidity in financial markets by quoting buy and sell prices for certain assets, aiming to reduce the gap between supply and demand. The market maker earns from the difference between the selling price and the buying price (the spread).
But behind this fundamental role, market makers use smart strategies that directly affect price movements, which may be misunderstood by regular traders. Understanding these strategies gives you a significant competitive edge.
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The most important market maker strategies in trading:
1. Liquidity Hunting:
The market maker intentionally moves the price to areas where there are many stop-loss orders. His goal is to trigger those orders to gain liquidity that allows him to execute his large trades smoothly.
Example: If he knows that there are many stop-loss orders below a certain support level, he may push the price to break the support, then immediately bring it back after gathering liquidity.
2. Fakeouts:
The market maker creates a false breakout of a resistance or support area to mislead traders into thinking a new trend is starting, then quickly reverses the price.
His goal: to trick traders into making wrong trades to gather liquidity before reversing the direction.
3. Accumulation/Distribution:
Accumulation: occurs in low price areas when the market maker buys gradually without raising the price.
Distribution: occurs in high price areas when it starts selling gradually without clearly lowering the price.
These phases typically show sideways price movement.
4. Stop Hunt Reversal strategy:
The price is pushed to break support or resistance to trigger stop-loss orders, then quickly reverses, causing many traders to exit with losses.
5. Time & Spread Manipulation:
He may suddenly widen the spread during news or in times of low liquidity to easily hit stop-loss orders.
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How do you protect yourself from market maker strategies?
Don't enter on the first breakout, wait for confirmation of the move.
Avoid placing stop-loss orders in obvious places (right above the peaks or directly below the troughs).
Watch the volume (trading volumes) during breakouts – a sudden increase may indicate a trap.
Learn to read price action and Wyckoff phases to understand where accumulation or distribution occurs.
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Summary
Success in the market requires not only understanding technical or fundamental analysis, but more importantly, understanding the behavior of the market maker who often controls price movements. The more you understand his strategies, the more chances you have to avoid his traps and ride the wave instead of falling victim to it.
Please share for awareness $$TKO