To become
profitable trader, first you need to find an answer to one question.
The question is: What are
big players doing? (
How are they
trading?)
I know that many of you will ask: Who are the
big players?
Are they the
investment banks,
hedge fonds,
investment companie,
individuals with immense capital,...
The answer is simple. The
big players are
market makers! The next question is: How are they trading (with
large amounts of
money)?
The answer to that question can't be seen on the
charts immediately.
New traders usually don't see further from the
chart.They think that everything is shown in the
price. It's true that everything is shown in the
price if you
know where to look. To understand
how the
big players (
market makers)
trade with
large amounts of money, you need to know that behind the
graphs is the entire
industry.
The cycle which is
constantly repeated on
the market is made of
three phases:
1. phase is
Accumulation
2. phase is
Manipulation
3. phase is
Profit Taking
You are on the one side of
the chart and on the other side are
market makers. You
see the chart and they see all your
pending orders. That way
market makers can easily
make decision when to buy so it could be sold to your
pending orders later. This
kind of industry is decades old and is constantly doing the
same
cycle repeatedly.
ACCUMULATION
To understand
the accumulation, first you need to know how
quoting operates on
the market. When a
trader with a small amount
buys or
sells on the
market, it doesn't have much of an
influence on price while
trading with
large amounts has influence.
For
Example!
Let's say that we have $10
million and we
want to buy a
trading instrument at
the price of $100.
However,
BID volume on the
price of the $100 is $
1 million so it would be closed only one
transaction of $1
million and then we would get
requote,
for example $101 with belonging
volume.
Now we have
two options:
1. option is to continue
buying and the
price will continue to
rise.
2. option is to wait for
price to touch $100
level again and then to
buy belonging
volume again.
We need to repeat that continuously until we spend $
10 million which are designated for
investing.
(On
the market that would be recognized as
testing $
100 level.)
MANIPULATION
After we
have invested $
10 million into a
trading instrument at a price of $100, we want
price to rise at $120.
$120 should have
high liquidity so we
could sell all $10
million and
make the profit of
20 percent.
If $120 won't have
high liquidity, the
price will fall and we will have to
manipulate the price to rise again. To explain the
price manipulation, first I need to tell you why is
price moving. Many of you will tell that
price is moving because of
many factors, for example
bid,
ask,
politics,
change of interest rate,
unpredictable weather, various
news publishing,etc. It's much simpler than that. The price is moving only because of
two main reasons and they are
believes and
news.
I know that many of you will say: Nonsense!
However, try to imagine that your best friend is explaining to you a
situation in some firm with details and he makes you believe that firm's
stocks will
rise. If you
believe that
stocks will
rise, you will
buy those
stocks. By
buying stocks you will
influence the rise of stocks. If you
don't believe what your friend is telling you then you won't buy those stocks.
I hope that from
this example you
can understand that price is driven by believes.
Why am I even
explaining you that the price is driven by believes?
Because market makers are aware that it's much easier to
manipulate the
believes than
the price itself.
To
move the price up or
down costs a
lot of money and to make a
reporter say whatever you want
is free. After reporter publishes the article, people will believe that the price will rise and they will start buying.
OK, I know that many of you will say now:" I disagree with you! It's not easy to control the media!"
So lets go trough this example:
A reporter gets a task to write an article about situation on the steel market.
Considering that reporter doesn't know much about the situation, he will go to the steel factory (company).
He will ask questions about conditions, predictions, price at the moment, etc.
Maybe he will go and visit more steel companies and make conversations with experts in that field.
Later he will write an article based on the information's gathered from steel companies. However,
only the one who gave those information's knows the truth about information.
Reporter isn't competent person to make a quality evaluation of gathered information's.
One thing is certain, to write an article, reporter won't ask a fireman, police officer, baker, etc. questions
about situation on the steel market.
Look on TV and check in the newspaper where are market information's coming from. They are coming from the market makers! Market makers have published tons of trading books (Forex e-books). This books are about trading Forex or trading stocks and they are providing free trading courses!
Why?
Market makers wish to program you so you can provide them large liquidity at the certain moment (time and price). They need large liquidity to get out from their positions ($10 million). It doesn't cost much for market makers to manipulate the price in a short time period in a way to make most indicators indicate the same thing. When indicators indicate the same thing and the price is in a certain position that will cause a mass effect and people will start buying.
PROFIT TAKING
When price comes to a certain price level ($120), market makers start closing their positions and all others start buying (providing liquidity to market makers). That's why every action has a reaction which is defined with Fibonacci retracements. If they don't get rid of all volume ($10 million) in a first try and price touches Fibonacci golden ratio (61,8%) then they start buying again to make the price rise again. They will start a trend to get rid of volume ($10 million). Trend ends when volume of $10 million is sold.
Then everything starts all over again: Accumulation, Manipulation and Profit taking.
($10 million, $100,$120 are just for example purpose and not as a guide)
CONCLUSION
Cycle is being repeated over and over again. It will never end.
Why?
It will end only when market makers decide not to take profit for themselves.
That will never happen!
