Abstract：Never make the first move unless you're a good-looking dude or gal trying to win over your crush. What we mean is that you should not always get in when the market is moving so swiftly.
Never make the first move unless you're a good-looking dude or gal trying to win over your crush.
What we mean is that you should not always get in when the market is moving so swiftly.
Markets range approximately 80% of the time, which dealers are aware of.
Sharp and sudden movements are more likely to be faded as a result of this. This is an excellent opportunity for dealers to make some money.
First and foremost, why will it most likely fade？
Dealers work for banks, thus they have two “advantages” (more like tricks, if we're being honest!) in their sleeves.
For starters, they can see what orders retail dealers have and want to fulfill.
Second, they have a large sum of money to back them up and affect the market.
Let's look at a chart to understand how dealers can benefit from these strategies.
A 5-minute chart of the EUR/USD is shown below. The German ZEW economic sentiment index, a high-impact report, was just released, as seen above.
When retail traders realize that the EUR/USD is plummeting on their charts, they decide to get in on the action.
“It's looking quite well,” they reason. In the last 5 minutes, the EUR/USD has plummeted 20 pips!
This will most likely continue to fall and test the daily low!
But hold for a second, that's exactly what the average retail dealer is thinking. What are the main concerns of dealers？
Dealers are aware that the release of data usually results in price spikes as traders rush in and out.
They also know that the first move after a news event is almost always a fakeout, and that price usually REVERSES to levels prior to the data being revealed.
Dealers, backed by their respective banks and hedge funds, will take the opposite position and fade the move.
Because their combined efforts (cough and money) overwhelm those of us retail traders, our positions are trampled on like ants.
The downtrend was not prolonged, as shown in the chart above. The dealers' position has pushed up the price to the point that.
And then, all of a sudden, the price changes! And it's here here that the magic happens!
Most people's stops were most likely set just above 1.2900.
Dealers are likely to have taken more long positions with their own money in order to push the price up to those levels in order to meet those stops (we'll go over this in more detail later).
“It is going to keep trading higher!” retail traders undoubtedly thought as they witnessed price setting a new daily high. I need to purchase!
Now that retail traders have changed their minds and want to buy EUR/USD, dealers can once again profit from the spread by closing their last long positions.
Dealers, banks, and trade institutions, on the other hand, are the real market players!
They are known as market makers because they affect the market!
Dealers can once again make a run for those stops and profit from the spread once all those retail traders get into their long positions and place their stop orders below the 1.2900 resistance.
Will you please take a look at that？ Price rose for a brief while, but then faded and dropped down under the 1.2900 handle.
Stop losses were likely hit by all retail traders who decided to go long on the break for new highs.
As it turned out, the 1.2900 resistance held for the remainder of the day.
You can watch how dealers take advantage of their significant advantage to sway markets in their favor!
This is why you shouldn't always make the first move since you can get caught in a fakeout situation.
These champions have one thing in common: they not only work their butts off, but they also enjoy what they do.
"Patience is the key to everything," American comic Arnold H. Glasgow once quipped. The chicken is gotten by hatching the egg rather than crushing it."
Ask any Wall Street quant (the highly nerdy math and physics PhDs who build complicated algorithmic trading techniques) why there isn't a "holy grail" indicator, approach, or system that generates revenues on a regular basis.
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