A trader first consciously faces a market maker in a rather banal situation. After having had several losing trades for the first time and dived into the Internet in search of a reason, they find an explanation for all their failures. It turns out that in the market there is a great and dreadful monster which pulls up the price to its stop-loss that the trader has calculated so correctly and set with such a margin of safety. Who is this monster? Is it true that it is so omnipotent?
How do we keep peace with it, and is it possible to earn with its help? Behind the mask of this main enemy is one of the market participants - market maker. Unlike ordinary exchange speculators who earn on to the difference in price when buying and selling various trading instruments, the market maker solves another, more global task - it provides market liquidity, acting as the second party to the trade in the absence of another counterparty.
If there is a stable tendency, it must work against the crowd. Since any resources have a limit, and financial ones are not an exception, market makers apply sophisticated hedging systems to their transactions through various option strategies. All work must be paid for, and all market participants pay a market maker for each trade.
This fee is a spread, not your stop-loss, and the difference between Sell and Buy always goes in favor of the market maker. Now we will consider possible ways of making a profit on various actions of a market maker. To begin with, it is not interested whatsoever in the ways and strategies with which speculators enter the market.
And naturally, to get it, it is ready to make effort and push the quotation in the zone where the largest volume of trade operations is concentrated. Here, market volumes are displayed within each trading session and as cumulative for the period. When comparing the trading volumes in the indicated time intervals, it can be concluded that at the present time the price, being in a downward trend, is approaching the level at which the increased interest of market participants in this currency pair was manifested.
Accordingly, at this level, a large number of orders of both buyers and sellers are placed. The former will buy from the support level with a stop-order for sale below, the latter will sell in case of a breakdown of support with a stop-order to buy above.
Both of them will use protective stop orders the shorter the time interval, the closer they will be to the entry point to the position. It will not be very difficult to collect all the stop orders set in both directions, provided that they are located within the price band, which may be attractive for large participants in regard to the accumulation of positions.
Here, triangles are formed, as well as other price and candle patterns. Suppose that the MM market maker sees the formation of the level of demand from buyers of the asset at 1. An ideal situation is being formed - at these levels the struggle of speculators is most probable, and it will be possible to realize all of its goals. Do not forget that the MM, seeing a large amount of deferred demand, can act as a speculator.
This is a win-win strategy, as at 1. In the event it can push the price through the specified resistance level, it may direct the movement in the direction of the trend using speculative volume. Is it possible to trade together with a market maker? It is and you should, but you need to think like it. The basis for building a strategy is the volume schedule you can use the tick volumes that your broker supplies as an element of analysis. Given this information, build your vision of the situation on the market as a market maker.
Are there areas of increased interest of traders? How would you work it out? And most importantly, you should never forget about the fact that the MM often stands on the opposite side, and its capabilities exceed the trader's capabilities in everything.
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