December 2015

Hey Traders

This week we are going to be focusing on the Market Maker Manipulation and content behind the scenes that played out on November 18th during the release of the FED’s Minutes, which had quite an effect on the EUR/USD. The entire move, from it’s initial setup to the profit release to the short side, was truly a spectacle to behold.

Should you have any issue understanding some of the terminology in this post, please refer HERE.

As you can see from the image above, all of the normal components of the Market Maker Business Model were present.

  1. Accumulation of retail orders.
  2. A belief created in the retail public that their trade is going to be profitable.
  3. A stop-out of their positions to clear retail orders off the books, and generate the liquidity required by Investment Banks to take a position of their own.
  4. A Release of Profits in the direction mostly everyone thought it was going to go in the first place.

 

This is all well and good in hindsight but what we are going to be focusing on is how to read the signs leading up to, and taking advantage of the entry.

We will start small with some of the clues on the 5 minute chart, and work out to the larger time frames. As you can see in the image above, some pretty standard things played out. When news was released price whipped down to a past 8HR Average Price. This was the exact entry to test, that ended up being worth quite a hefty sum of pips. Taking that in the midst of High news snapping around can be a bit unrealistic though. There was also some play around a past Daily Average Price line, but that becomes much more pronounced on some of the higher time frames.

After taking out a past accumulation Dot (which was the best entry into the short earlier in the morning), price stalled out and started pulling back.

The real entry into this trade took place around 25 minutes post news when price completed it’s 32 pip pullback. For those unaware, the Market Maker’s Business model functions off of a 30 & 45 Pip system. Landing this entry had a risk of around 4 to 6 Pips, with a massive upside.

Of course, this is all on the 5 minute chart. Let’s take a look at how some higher time frames might have lent themselves to a long move playing out.The 15 minute chart is where things really got exciting. As stated on the picture, accumulation in the form of a 15 minute Dot took place on a past Daily Average Price line (represented by the tan line). These past levels have shown time and time again that they are some of the prices of choice for Market Maker’s to place trades of their own.

When the Market Maker’s accumulate orders at a price level, they allow the retail trader to also get in at that price. It is how they generate liquidity for their own massive trades. The retail trader’s stop levels was represented by the yellow liquidity line left near the low.

When news came out, it broke right through this level (stopping out any retail trader’s in a long position). After this stop out had taken place, price rose back up, and ended up being a rotation off of that original Market Maker entry point. This effectively took out retail traders, while protecting Market Maker interest in the pending long move.

The 1 hour chart was actually surprisingly similar to it’s 15 minute counter part. There was an accumulation Dot dead on that past Daily Average Price line, followed by a stop out of retail orders. Following the stop out, price rotated back up through the Dot, showing Market Maker’s protecting their own interests in a long position.

At this point there was a great deal of information point to the probability of a long trade, with virtually no risk. As a student of the FX365 Institute, this is an ideal setup.

With the current layout of Smart Money Profile Software, we do not track Accumulation Dots on the 4 Hour chart, however it is plain to see what took place. It was further rotation off of that past daily average price line. At this point, a trade to the long side is inevitable.

Once the long trade played out (which was worth about 120+ pips), I’m sure you can see that the market ended up backing off and going into an even larger run to the short side. Let’s take a look at that to see if there were any signs to get into this trade.

When I’m explaining the Market Maker’s Business Model to a new student, I like to use the gear analogy: The 5 minute gear spins the 15, which in turn spins the hour, that then spins the 4 hour, so on and so forth.

What was an Accumulation, Manipulation & Profit Release on its own ended up being a manipulation to the long side. This Manipulation was intended to knock out a serious number of retail traders from the on going short of the EUR/USD.

As you can see in the picture above, price traveled up and ended up bouncing off of a daily Average Price line. These price lines represent Market Maker Entries into their own trades. A Bounce off of one (especially on the daily chart) is a serious sign of a coming profit release in the opposite direction.

And since it has been mentioned so many times, here is the Daily Average Price line brought up throughout this post. It was formed May 15th, 2015, and all these months later has proven to be an invaluable price level to keep track of.

If you have ever been in a trade, only to get stopped out moments before the move takes off, I would encourage you to look into the Market Maker’s Business Model. If you ever get the feeling Forex is rigged against you, it’s because it is. Luckily for us though, the Market Maker’s system plays out time and time again on every time frame in every currency pair. Learning how to read the 3 stages of the Market allows you to get in when they do, and take your profit when they do. While it can still be hard to master, it certainly levels the playing field in Forex Markets.

Thanks for the read, and be sure to subscribe if you found any of this information useful.

-Shane Guth

Director of Education