How do i identify the market maker's trap in trading?
How do i identify the market maker's trap in trading?
i want to learn to predict the trap used by market makers in trading. i want to avoid fakeouts.
Re: How do i identify the market maker's trap in trading?
In forex trading, when a buyer wants to buy currency, there must be a seller in the market. Without a seller, the buyer can not buy. In the same way, when big institutions or banks want to sell large amounts of currency, there must be many buyers in the market. So, to find many buy orders, market makers or banks create a situation or pattern that makes the retail traders open buy orders. They will make fake support or resistance levels etc.
For example, in the image below, market makers have created two equal highs showing a resistance zone. Retail traders will hide stoplosses above this resistance, or they will put a lot of buy orders there, thinking that after the resistance breakout, the price will make a bullish trend.
However, the price significantly reversed after a fake resistance level breakout. The big, bearish, impulsive move shows that the bank's sell orders have been filled here. This is the simplest form of a trick played by market makers.
We can also use this strategy to find trend reversals by adding a confluence of higher timeframe.
Let me show you another example. Look at the two equal price lows. The market has broken this support area and then made a big bullish reversal, showing that their buy orders have been filled.
This price fakeout is also known as buy-stop liquidity or sell-stop liquidity.
However, the price significantly reversed after a fake resistance level breakout. The big, bearish, impulsive move shows that the bank's sell orders have been filled here. This is the simplest form of a trick played by market makers.
Let me show you another example. Look at the two equal price lows. The market has broken this support area and then made a big bullish reversal, showing that their buy orders have been filled.