Ads Area

MARKET MAKER NOTES

To successfully use the market maker method you need to begin to understand the motivations and tools that the MM has. The sole goal of the MM is to make a profit. The only tools at its disposal relate to manipulating price.
Price is a reflection of the number of transactions and the price paid for these transactions. A large number of transactions are required to shift the price. The Forex market is said to trade $4,000,000,000,000 per day. The bulk of the transactions are carried out by large institutions, not by small traders. Therefore, the bulk of transactions made by small traders will be made with larger institutions. This also means that a price is moved predominantly as a result of what the large institutions are doing with currency. Their ability to dominate the market is overwhelming. It costs about 10,000 lots to move the market by one pip. MM’s have the ability to move price at will retail traders do not. So for a retail trader to be truly successful, they need to at least have a concept of this process so that they understand what is happening and why. Even better, to be able to identify the patterns and strategies that MM’s use to play the game and to the ‘piggy back’ with them rather than attempt to trade against them.
For example, if one institution places an order to buy $1,000,000,000 (10,000 contracts) of Euro for instance, then it would require 10,000 traders selling one contract each, 100,000 traders sell 0.1 contracts each or 1,000,000 traders selling .01 contracts each to balance these transactions. Put another way, the same number of traders would be required to initiate a transaction at more or less the same time in the same direction to move the market.
So once you realise that price is moved as a result of deliberate, logical decisions the idea that price is a product of the emotional feeling of the various traders involved or of sentiment is misguided. Retail traders then, are left to react to the prices that they see, many of whom react emotionally.
In relation to learning and using this material, it involves changing the way you think about the market and it will be necessary to do the homework, absolutely essential to learn to spot the patterns. You won’t be able to see them setting up if you can’t see them in hindsight. Even after you are proficient, it will still be worthwhile going through setups on historical data to ‘keep your eye in’.
Most of the successful students go through at least several years’ worth of charts to identify the patterns. Trading should be reasonably relaxing rather than stressful. So rather than trying to trade everything that moves aim to be extremely selective and then make as much as you can from that move. This of course involves trading heavily on these highly selected setups.

To be continued...

Ads Area