Someone tells you about it!

Who is the market maker?

The market maker is an entity (which can be an institution or an individual) that provides liquidity in financial markets by quoting buying and selling prices for certain assets, aiming to reduce the gap between supply and demand. The market maker profits from the difference between the selling price and the buying price (the spread).

But behind this basic role, market makers use clever strategies that directly affect price movements, and they may be misunderstood by ordinary traders. Understanding these strategies gives you a significant competitive edge.

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The main strategies of the market maker in trading:

1. Liquidity Hunting:

The market maker deliberately moves the price to areas with many stop-loss orders. Its goal is to activate those orders to gain liquidity that allows it to execute its large trades smoothly.

Example: If it knows there are many stop-loss orders below a certain support, it may push the price to break the support, then return it immediately after gathering liquidity.

2. Fakeouts:

The market maker creates a false breakout of a resistance or support area to deceive traders into thinking a new trend has begun, then quickly reverses the price.

Its goal: to induce false trades from traders to gather liquidity from them before reversing the trend.

3. Accumulation and Distribution:

Accumulation: occurs in low price areas when the market maker gradually buys without raising the price.

Distribution: occurs in high price areas when it starts selling gradually without clearly lowering the price.

These phases usually show sideways price movement.

4. Stop Hunt Reversal strategy:

It pushes the price to break support or resistance to activate stop-loss orders, then quickly reverses it, which leads to many traders exiting with losses.

5. Time & Spread Manipulation:

It may suddenly widen the spread during news or in times of weak liquidity to easily hit stop-loss orders.

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How do you protect yourself from market maker strategies?

Do not enter on the first breakout, wait for confirmation of the movement.

Avoid placing stop-loss orders in obvious places (above peaks or directly below troughs).

Monitor 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.