Forex Market Makers Manipulation Explained – Question It!
Today’s FX+ Blog article is based on our Bank Trading Manipulation Strategy we teach and follow. The entire financial market is based on 1 big lie fueled by free indicators, strategies and robots that promise you consistent profits and success. Some will stand by this theory no matter what, viewing the markets from one direction, getting stuck in the market makers ‘business model’. A harsh reality to accept but backed up by the fact that Smart Money move the markets. Unfortunately if you follow the majority you will fail with the majority. This is exactly what the market makers cycle is all about and what they depend on.
Before we can understand how they manipulate we need to know who or what exactly Market Makers are. There are many theories out there about this topic, claiming a $4 trillion a day market is too big to be manipulated. More on that later in the post as I am trying to keep this short and sweet!
Market Makers In A Nutshell
Market Makers are the big boys in the industry controlling large sums of money on a daily basis as well as market liquidity. Market Makers are referred to as ‘Smart Money’.
Smart Money are:
- Big Banks
- Hedge Funds
These firms/businesses employ and consists of the brightest financial minds in world, managing large sums of money we can only dream of. Due to the massive amounts of funds they control they run into 1 major problem- Liquidity! The demand in liquidity is the whole reason manipulation exists. Without liquidity Smart Money will spike the market up or down, thus giving away their directional movement.
Newbie Lesson 101
For a Forex trade to complete there needs to be a buy and a seller present. For every buyer there needs to be a seller. If I want to sell 1Lot EURUSD @ 1.12345 someone must be willing to buy 1Lot from me @ 1.12345 for the transaction to take place.
The degree to which an asset or security can be bought or sold in the market without affecting the asset’s price. Liquidity is characterized by a high level of trading activity. Assets that can be easily bought or sold are known as liquid assets.
In simple terms liquidity allows Smart Money (market makers) to hide their buy/sell orders without dramatically spiking price, thus alerting the entire market of their given direction (buying or selling). If the market knew their direction everybody would simply jump on board, limiting the profit potential of the Market Makers drastically.
How They Manipulate The Forex Market
Now that we know who and why SM manipulates we can look at how they tend to manipulate the FX market day after day. Traders also refer to manipulation as trapping.
The Forex Market Makers have to create believe that the market is going to move in one direction before they push it the opposite way. They have to ‘sell’ it to the rest of the market using what we as retail traders learn from day one.
- Indicators (MACD, EMA Crosses etc.)
- Candle Patterns (Shooting Start, Engulfing etc.)
- Chart Patterns (Double Tops, Double Bottoms etc.)
- EAs and Scripts
- Free Broker Education
The list goes on…
Have you ever thought why 99% of all the above mentioned is FREE? Why would something profitable be free and available to each and every trader? Why would someone sell his or her profitable robot or EA for $99? Anybody with common sense would know that something does not add up. MT4 and other similar trading platforms cost brokers hundreds of thousands of USD every year. Why do they give us access to these expensive software for free?
The answer is simple. They know that 95% of traders fail, losing money time and time again. But what about the traders that have a few profitable trades every now and then. Think about the Marker Maker business module as a casino slot machine. They pay out every now and then, thus getting you to come back again. The gambler returns with the hope of hitting the jackpot once again but ends up losing his/her previous profits as well as capital. Make sense? It’s an endless cycle that repeats itself over and over, fuelling the casino’s profit.
Here Is An Example:
Your trading strategy is based on trading chart patterns. You learn and know every single pattern out of your head. When you see x happen you know y is going to occur. You look at the charts based on patterns. Your eyes are trained to look for what you have learned and trained yourself to identify.
You have read and seen many examples and results of people using this strategy you plan on using. A double top occurs on the EURUSD and you plan on shorting the market as you expect it to drop based on what you see. Your trade ends up successful and you made money. 3 More trades occur and you end up losing on all 3 of them, giving back the profits you made on the first successful trade. You think it has to have been bad luck or an error based on your analysis and invest more money into your trading account.
This is a textbook example of the Market Makers cycle and business module in action. 1 Step forward and 3 steps back, slowly depleting the trader’s account while getting him/her to deposit more funds.
Don’t Follow The Herd – Be The Odd One Out
Unfortunately it’s in our human nature to follow the majority, making it that much harder to get out of the losing cycle. Not an impossible task when you put your mind to it while following the Smart Money cycle. Don’t try and make your own rules and theories about the market. Jump on board and attach yourself to the already profitable Smart Money business module. Trade with them, rather than against them. The odd few will end up being the successful few!