1. The IMF restricts their ability to move price to a general range so as to avoid a collapse of the market.
2. This is generally limited to the ADR and will involve moves of as much as 200 pips per day in most pairs.
3. They do not have unlimited equity so it is necessary for the market- makers to close positions and regain balance periodically.
The only tools they have are to be able to buy or sell currency in different volumes at different prices. By doing this strategically, they can:
1. Entice traders to take positions by providing evidence that price is or is going to move in a certain direction.
2. Appeal to the emotional side of traders by changing the character and speed of price changes.
3. Once the trap has been set, and the bait taken, cause the price to move in such a way as to cause price to move against the traders, allowing the banks to buy currency back from or sell currency back to the traders so that they are square again.
4. This means that the trader has entered the market by buying currency from the bank at a given price and exited the market by selling back to the bank at a lower price. Conversely, the bank has sold to the trader at the higher given price and bought back from the trader at the lower price.
While these price movements are used to trap traders into unfavourable positions, they are not used 24 hours a day, but will be used more at certain times. The patterns are most commonly observed in the following time periods :
1. The beginning of the season (quarterly)
2. The beginning of the week (Sun/Mon)
3. The beginning of the day
4. The beginning of the session
5. The end of the session
6. The end of day
7. The end of the week
8. The end of the season.
To be continued...
