Category: Market Makers Business Model

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

There was an issue loading your timed LeadBox™. Please check plugin settings.
There was an issue loading your exit LeadBox™. Please check plugin settings.

Here are some terms used focused around Forex Market Manipulation in the FX365I culture:

 

Accumulation: A range of Price that the Market Makers have stalled the Market at in order to collect orders, and set up a pending Market Move. Accumulation comes in two varieties for purposes of what you are looking for: Short term & long term. Short term accumulation will influence short term direction and quick manipulation moves, whereas long term manipulation will influence the overall direction of the Market.

Average Price: A price that Market Makers and Retail Traders have entered into trades. Average Price is represented by a bright green line on the 1HR and 4HR charts.

Bounce: When price hits an Average Price Line, Dot, Top/Bottom of Box perfectly then moves the opposite direction following.

Box: A light blue square or rectangle found on your 1HR or 4HR chart. This is how Smart Money Profile Software defines Accumulation on a larger time frame.

Breath: While the Market travels Long or Short, it will often temporarily stall and retrace slightly before continuing.

Candles: Price movement as represented by a bar shape on your charts (MarketScope). They will show you where price opened and closed, as well as where price moved within a given time frame.

Closed Positions: The section inside of your Trading Station where you can view your profit and loss of each trade that you have closed out.

Dot: A Bright green dot found on your 5M, 15M, and 1HR charts. These represent short term Accumulation and can be used for a variety of purposes.

FX365i/Forex 365 Institute: Your new Forex Educator. We provide Software and Education only

FXCM (Forex Capital Markets): The Broker that you will be using as a FX365i student. FXCM will be processing your orders when you decide to go into trades. They also provide the trading platform that enables you to watch the Market on your Computer (See Trading Station & MarketScope).

Grid Line: A series of reactive price points.

Indicators: Tools that retail traders rely on to make decisions regarding future price movement.

Limit Order: An order, placed automatically or manually, that closes your trade in the direction you have placed your trade in.

Liquidity: A large amount of money at an area in the Market. Also high volume times in the Market.

Liquidity Line: Blue and yellow lines that appear on your 1HR, 15M, and 5M charts. They represent liquidity and belief levels in the Market.

Liquidity Swap: A manipulation of price meant to change the overall direction of price.

Long: When the Market is moving up, or a Buy Order that you have placed.

Manipulation: When Price is deliberately moved by the Market Makers in order to stop-out Retail Traders, or to build a belief of a certain direction in Retail Traders.

Market Makers: The Financial Institutions that manipulate the Market.

Marketscope 2.0:  FXCM’s program that displays your charts and candles. Also where you are able to add in Indicators to lay over top of the candles.

Net: An area that consists of two Grid Lines.

News: Financial information pertaining to a certain currency pair. Can come in high, medium, and low volume varieties.

Pip (Point In Percentage): A measure of a currency pair’s movement. More simply though, a pip is what we in the Forex would consider a “point” for calculating profits and losses.

Price Alert: A user added line that draws infinitely across all charts on MarketScope in a specified pair.

Price Line:  The blue line (once you have properly set your colors up) that represents the live Exchange Rate between the two currencies you are watching.

Profit Release: A stage in the Market Makers Business Model. This stage takes place following sufficient accumulation and manipulation.

Pullback: Interchangeable with Breath – While the Market travels Long or Short, it will often temporarily stall and retrace slightly before continuing. This is usually a chance to place a trade of your own.

Push: Price has traveled long/short in a relatively short amount of time. Usually consists of 1-5 candles.

Range: The prominent highs and lows set by price in any given time period.

Advanced Rate Indicator: The “Flashing lights” inside of Trading Station. The tool we usually use to enter and exit a trade.

Retail Trader: Any Trader/Investor that does not work for a Hedge fund, or an Investment Bank. These Traders trade their own accounts.

Rotation: Interchangeable with “bounce” – Price nearing a resistance/support point, and turning the opposite way.

Run: Generalizes a gradual large movement of price. Can be characterized by multiple pushes, with multiple pullbacks.

Short: Selling the pair you are watching, or Price traveling down.

Slippage: When the broker is not able to place your trade at your specified price (Usually happens during high news events such as; GDP, Non-Farm Payroll, Rate Decision, etc.)

Smart Money Profile: The name of the software used in the Market Makers Course.

Snap: A quick, medium to large movement of price.

Stop Order: An order used to automatically take you out of your trade to manage your risk.

Stop Out: An outcome of manipulation by the Market Makers. Hitting masses of Retail Trader’s Stop Orders.

Traders Prison: The metaphorical “Prison” that many technical Traders land in by constant system development, usually through technical indicators.

Trading Journal: A means to properly track your trades on a day to day basis.

Trading Station: FXCM’s platform that allows you to view currency pairs, and manage positions, as well as your trading account. This is what FX365i Software is installed into.

There was an issue loading your timed LeadBox™. Please check plugin settings.
There was an issue loading your exit LeadBox™. Please check plugin settings.

Luckily for those of us that trade the Market Maker Business Model, the way in which Forex works is extremely simple.

I’d like to lay out an example of what I would consider a pretty standard technical trading screen. It was built with free indicators that are widely available, and widely used by Traders across the world.

You can obviously see how easy and intuitive this type of trading is just at first glance…

Not so much. And it isn’t even so much an issue of which ones were used in the example. Frankly whichever indicator is added into the fold or taken out is a moot point. In a world where technical system development runs rampant, screens that take this form often fail to produce results.

Less is More

If you have ever been down the road of system development in trading, this thought is sure to have crossed your mind at some point. There is a tipping point where you are being bombarded with information and can not make a decision that holds any water. This is when the balancing act of removing indicators starts to come into play. God forbid you have access to the calculation settings, because that’s where things start to get really crazy.

It is possible to tweak nearly any screen to give perfect signals on any given day. If the market moved in the exact same way day in and day out this would work exceptionally well. Unfortunately reality stomps on that dream. So close.

So how exactly can you apply the ‘less is more’ to system development in Forex trading? Get rid of every indicator?

No we’re getting somewhere. The issue with standard technical indicators, however many of them are used, is that they mask the simplicity of how the market actually works. Using technical indicators can be great if you are playing a metaphorical baseball game. The only problem is Forex would then be football.

The Market Maker Business Model works in 3 stages:

Accumulation

Manipulation

Profit Release

  1. The accumulation of orders.
  2. A belief in retail traders is created and then manipulated.
  3. The market runs the direction most everyone thought it was going to go in the first place.

The moment you add a moving average (or technical indicator) of any type, you have added a mask to this process, as it does not show you when and where money has changed hands. It is based off of price action that will never repeat itself in the exact way for the rest of history.

To conclude, I would encourage anyone looking for the perfect trading setup to research the Market Maker Business Model. If Forex were a casino the Market Maker Business Model is card counting, while everyone else is wearing their lucky socks looking for a machine that ‘speaks to them.’

 

Shane Guth

Director of Education

There was an issue loading your timed LeadBox™. Please check plugin settings.
There was an issue loading your exit LeadBox™. Please check plugin settings.

One of the rules I have for entering a trade is, “I understand the set up for the trade that I am about to enter.”  Despite this rule, I realize that I have never taken the time to actually write down exactly what those trade set-ups and entries look like on the SMP platform.  Wow, that’s pretty shocking.  How have I not done this yet?  I should be doing this on an ongoing basis.  So that settles it: my mission over the coming days and weeks is to specifically write, diagram, and (hopefully!) screen-shot successful trades that exemplify exactly what I’m looking for in trades.  My hope and belief is that as I write out more and more of these set-ups, I will recognize them better when I see them, I will stay OUT of trades that don’t fit the criteria, my approach towards each of the trades will be refined, and my overall trading will improve dramatically.  Today I am just going to start with one very simple trade.

Disclaimer: This blog only represents my opinion.  Although my opinions are based on what I have learned at Fx365i, none of this necessarily represents the official views of the institute.

Bounce Off Average Price:

  • Entry:
    • When this trade works out, it can lead to awesome trades.  Very simply, if price has moved significantly away from an accumulation area and then reaches a larger average price line, if it appears to be bouncing cleanly off that average price, I believe you must GET IN QUICKLY!
    • If you wait too long, and the bounce is aggressive, then all of a sudden there are 15 or 20 pips of risk.  To use our bus stop analogy, if you get on quickly, you’re along for the ride.  If you wait too long, you’re either a) going to take a big dumb risk and try and jump on the back bumper of the bus (chase the trade), or b) get left at the bus stop sucking fumes as the bus takes off.
    • One key to entering this trade is keeping up with measuring.  It is not every day that we see a perfect 90 pips between the dot on the hour that price just rotated off and an average price line.  More frequently, we will be somewhere in the 90 pip ballpark.  Maybe we’ve only run about 82-85 from the dot, but if you measure from the high to the average price, it’s 108 pips.
    • As such, I believe that once we’ve run 90’ish pips and are possibly getting an exact bounce off average price, you can’t hesitate to get in.  The worst case scenario is to take a small negative (stop should be no more than roughly a pip off average price).  If you have 5 pips of risk vs a 30 pip profit target, that’s an outstanding 6:1 ratio.  On top of that, a clean bounce off average price can often result in a much larger run, so you may even have better than a 6:1 ratio.  Pretty awesome!
  • Exit:
    • I’m trying to refine my technique for when to exit this trade.  The image above is shows a trade I was in recently where I got solid entry off average price.  I got in 4 pips from the bottom (which was exactly at average price).  My current rule is that if it doesn’t give me a strong initial bounce, then if I see a small positive, I’m getting out.  On that trade, I took a +5 because price did not move much for the first couple of minutes after I entered the trade. Then, on the same 5 minute candle, the trade ran 20+ pips.  After an 11 pip breath to begin the next candle, price pushed up to the point where I could have taken a 40+ pip trade (in less than 10 minutes) based on my entry.
    • One reason I got out quickly on this trade was because we had already tested that same daily average price 1 day earlier.  This made me believe we might be ready to blow through it this time.
  • Refinement:
    • One reason why I’m somewhat willing to get out with these small positives is I’m concerned about the market just taking a minuscule breath and then smashing hard through average price before breathing back.
    • On one hand, I need to realize that if we have run 90 and are now hitting a significant average price, there is a great chance we will see at least a 30 pip breath. As I mentioned earlier, a 6:1 or better reward to risk ratio is incredible.
    • On the flip side, from an overall money management viewpoint, if I end up taking a fair number of +5’s along with a few -5’s – and put those together with the occasional +30 or more, that’s a long-term winning recipe.
    • I have to admit though, it’s really stinks to get out of a trade just to watch it run straight to my profit target 30 or 60 pips away when I hadexcellent entry into the trade.
    • I’m trying to decide whether it’s better to a) play it more conservatively by taking the little +5’s and dealing with the risk that I’m about watch the market run 60 pips in my direction, or b) be more aggressive and let the trades play out while sticking my stop right under the average price so that I KNOW that I was wrong in the trade. I would take more negatives, but I would also see more 20+ pip trades.  I’m really torn on figuring out which way to play this.

Well, “Bounce off Average Price” is the first trade I have mapped out like this.  Hopefully there will be several more to come over the coming weeks.  As always, all traders’ thoughts and comments are tremendously appreciated.  Please feel free to contact me at pipaddict73@gmail.com – I’d love to hear from you.

 

-Cyrus Sidhwa

Fx365i Student

Smart Money Profile Trader

There was an issue loading your timed LeadBox™. Please check plugin settings.
There was an issue loading your exit LeadBox™. Please check plugin settings.

 

Since We're Talking Goals by Jessica H.

Talking Goals with Jessica

Since We’re Talking Goals

A riveting discussion is guaranteed at every Wednesday 9:00 AM PST student counsel meeting.  This week’s was no different. One of the most interesting topics we covered was the meaning of goals. It was clear that each FX365i student has their own idea in the matter.

I recall a conversation with one of my mentors that transpired as follows:

 

Mentor: What’s your weekly goal?
Me: 50 pips.What’s yours?
Mentor: 35 pips.
Me: That puzzles me. You’re an amazing trader why isn’t your weekly goal higher? I know you pull over 50 pips a week.
Mentor that always answers a question with a question: When you make 42 pips in a week but your goal in 55, how do you feel?
Me: Ohhhhhh…..
Mentor: Exaaactly…

That conversation led me to think goals beyond what I had previously imagined, to which I arrived at the realization that goals operate both on a fundamental and a technical basis.

Technically Speaking
Technical goals are simple as they are numerical and absolute. Either you made the 55 pips by closing time on Saturday, or you simply did not. There is no grey area.

Goals Fundamentally
But yet there exists another element to this equation. That element is related to  your original intention.

When you made the decision to become a trader, your original intention was likely to fall into one of two categories (or a hybrid of them). I explain below.

“The Freedom-centric”

If you are in this category you became a trader because you understood that it is your opportunity to “buy back your freedom.” Your original intention was to discover a means of supporting yourself (with relatively few hours of work) so that you could spend your time pursuing your other passions.

You understood that if you meet you goals at the end of the week, there is no need to trade any further.  In laments terms, “trade for 2 hours… then go surfing” or “trade for 2 hours…then go knit a sweater” or “trade for 2 hours… then go play catch with your children” –you get the point.

“The Trading Passionate”

Perhaps when you became a trader your original intention was to develop a new skill, as was the case for me. Apart from learning the markets and regaining my freedom I looked to trading as a new hobby. I have an interest in it, my interest is fueled by a deep passion and an ever-growing fascination with the financial markets. Essentially the mantra of the trading passionate is a different. It follows this vein of though: “trade for 2 hours…learn the skill”, “trade for 2 hours…get better”, “trade for 2 hours…ask a question”–you get the point. In some respects, the trading passionate are also the perpetual students that want to know everything about the markets.

My Findings

We have standard goals at our school; it is a weekly 35-pip goal. One of the opinions that I have recently adopted is that all technical goals must be a prime number. On the basis that it must not be divisible by 5, or more specifically, the number of days we actively trade at school each week.

For my peers that don’t have the opportunity to take part in our weekly discussions, the position I expressed during counsel was as follows:

A 35 per week goal is in essence requires a 7-pip trade per day, however, the market isn’t necessarily favorable for 5 days worth of trading.  Advanced traders (whether freedom or passion driven) do not necessarily have to trade everyday. However, if for instance your goal was 33 pips a week, your mindset shifts. Now you’ve created a mindset that you can trade 3 days at 11 pips each and either watch the market for two days (trading passionate) or surf for 2 days (freedom-centric).

In further defense of my position…

A prime number is not divisible by anything. There are no daily requirements to be on track, thus no pressure that carries over into the next day. The only requirement you have is that you make it past the finish line on Friday, emerging at the numerical goal that you intended at the start of the week.

Lastly, Todd wrote a lovely article about goals recently (Smart Goals for Currency Traders). It is great reading that is bound to get you thinking about your own goals.

Until then, Trade Free or Trade Passionate!

Signing Off,

pips and lipstick signature

 

 

 

 

Please feel welcome to share your thoughts in the matter. Are your goals fundamentally or technically based? I’d be delighted to hear more from you.

There was an issue loading your timed LeadBox™. Please check plugin settings.
There was an issue loading your exit LeadBox™. Please check plugin settings.