There must be a seller for each buyer and a buyer for each seller. If there is so much market demand to buy above a resistance level or sell below the support, the broker acting as the market maker has to absorb all these orders. However, you must know that the market maker is not a fool.
Most of the retail traders being inexperienced or new like to trade the breakouts! When the new traders learn technical analysis, they tend to most eagerly follow trade recommendations based on certain chart patterns recommended in the books.
However, the seasoned traders do exactly the opposite of what the crowd is expected to do. They prefer to fade breakouts. Most of the successful traders are contrarian in their trading approach.
Most of the breakouts fail because the institutional or the seasoned traders take advantage of the crowd psychology of the retail or inexperienced traders and win at their expense. For every loser, there is a winner. Trading is a zero sum game.
Lets understand the tricks that can be played by the institutional dealers and traders. Market markets mostly the forex dealers and brokers can fade breakouts. Their game plan is simple. They will make money from the majority of the crowd who thinks that prices will rally happily after an upside breakout or decline dangerously after a downside breakout.
Market makers are the pricing counterparties to the retail traders like you and me. They have to take the opposite side of your trade whether you like it or not. Suppose most of the retail traders have placed their stop entry order at a certain price above the resistance level.
Market makers reach into their pockets. They spend some of their money to bid up the price to that level where most of the stop entry levels have been placed. Now they can sell to most of the traders who are desperate to buy. Thus making some decent profits from this trick played on inexperienced traders.
By selling to the retail crowd, the market makers get the chance to close their long positions. Now they begin to short and try to overwhelm the buying crowd. This pushes the prices down, below the breakout level, where many stop loss orders have been placed by the retail traders who wanted to trade the upside breakout.
Market makers have the information of their customers orders from their order book. Thus a potential conflict of interest exists. By buying from the retail traders who are selling to close their losing breakout trades, market makers happily offload their short positions now. Retail traders must know how to protect themselves.
Retail crowd thinks that the false breakout is due to the sudden turning of the market. Market makers often go on the stop hunting spree. False breakouts maybe the consequence of that! These false breakouts are most likely the direct result of the games market makers play. - 23309
Most of the retail traders being inexperienced or new like to trade the breakouts! When the new traders learn technical analysis, they tend to most eagerly follow trade recommendations based on certain chart patterns recommended in the books.
However, the seasoned traders do exactly the opposite of what the crowd is expected to do. They prefer to fade breakouts. Most of the successful traders are contrarian in their trading approach.
Most of the breakouts fail because the institutional or the seasoned traders take advantage of the crowd psychology of the retail or inexperienced traders and win at their expense. For every loser, there is a winner. Trading is a zero sum game.
Lets understand the tricks that can be played by the institutional dealers and traders. Market markets mostly the forex dealers and brokers can fade breakouts. Their game plan is simple. They will make money from the majority of the crowd who thinks that prices will rally happily after an upside breakout or decline dangerously after a downside breakout.
Market makers are the pricing counterparties to the retail traders like you and me. They have to take the opposite side of your trade whether you like it or not. Suppose most of the retail traders have placed their stop entry order at a certain price above the resistance level.
Market makers reach into their pockets. They spend some of their money to bid up the price to that level where most of the stop entry levels have been placed. Now they can sell to most of the traders who are desperate to buy. Thus making some decent profits from this trick played on inexperienced traders.
By selling to the retail crowd, the market makers get the chance to close their long positions. Now they begin to short and try to overwhelm the buying crowd. This pushes the prices down, below the breakout level, where many stop loss orders have been placed by the retail traders who wanted to trade the upside breakout.
Market makers have the information of their customers orders from their order book. Thus a potential conflict of interest exists. By buying from the retail traders who are selling to close their losing breakout trades, market makers happily offload their short positions now. Retail traders must know how to protect themselves.
Retail crowd thinks that the false breakout is due to the sudden turning of the market. Market makers often go on the stop hunting spree. False breakouts maybe the consequence of that! These false breakouts are most likely the direct result of the games market makers play. - 23309
About the Author:
Mr. Ahmad Hassam has done Masters from Harvard University. He is interested in day trading stocks and currencies. Know These Forex Broker Games. Learn Forex Trading!
