Learn Breakout Fading? (Part II)
The forex broker acting as the market maker has to absorb all the buy/sell orders if there is so much market demand to buy above a resistance level or sell below the support. There must be a seller for each buyer and a buyer for each seller. However, you must know that the market maker is not a fool.
When the new traders learn technical analysis, they tend to most eagerly follow trade recommendations based on certain chart patterns recommended in the books. Most of the retail traders being inexperienced or new like to trade the breakouts!
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.
Trading is a zero sum game. For every loser, there is a winner. Most of the breakouts fail. 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.
Lets understand the tricks that can be played by the institutional dealers and traders. Their game plan is simple. Market markets mostly the forex dealers and brokers can fade breakouts. They will make money from the majority of the crowd who thinks that prices will rally happily after an upside breakout. Similarly, it will decline dangerously after a downside breakout.
Whether you like it or not, market makers have to take the opposite side of your trade. They are the pricing counterparties to the retail traders like you and me. Suppose most of the retail traders have placed their stop entry orders at a certain price above the resistance level anticipating a breakout.
Market makers spend some of their money to bid up the price to that level where most of the stop entry levels have been placed. Market makers reach into their pockets. Now they can sell to most of the traders who are desperate to buy. They make some decent profits from this trick that they had 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.
By buying from the retail traders who are selling to close their losing breakout trades, market makers happily offload their short positions now. Market makers have the information of their customers orders from their order book. Thus a potential conflict of interest exists. Retail traders must know how to protect themselves.
Market makers often go on the stop hunting spree. False breakouts maybe the consequence of that! Retail crowd thinks that the false breakout is due to the sudden turning of the market. These false breakouts are most likely the direct result of the games market makers play. - 23167
When the new traders learn technical analysis, they tend to most eagerly follow trade recommendations based on certain chart patterns recommended in the books. Most of the retail traders being inexperienced or new like to trade the breakouts!
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.
Trading is a zero sum game. For every loser, there is a winner. Most of the breakouts fail. 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.
Lets understand the tricks that can be played by the institutional dealers and traders. Their game plan is simple. Market markets mostly the forex dealers and brokers can fade breakouts. They will make money from the majority of the crowd who thinks that prices will rally happily after an upside breakout. Similarly, it will decline dangerously after a downside breakout.
Whether you like it or not, market makers have to take the opposite side of your trade. They are the pricing counterparties to the retail traders like you and me. Suppose most of the retail traders have placed their stop entry orders at a certain price above the resistance level anticipating a breakout.
Market makers spend some of their money to bid up the price to that level where most of the stop entry levels have been placed. Market makers reach into their pockets. Now they can sell to most of the traders who are desperate to buy. They make some decent profits from this trick that they had 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.
By buying from the retail traders who are selling to close their losing breakout trades, market makers happily offload their short positions now. Market makers have the information of their customers orders from their order book. Thus a potential conflict of interest exists. Retail traders must know how to protect themselves.
Market makers often go on the stop hunting spree. False breakouts maybe the consequence of that! Retail crowd thinks that the false breakout is due to the sudden turning of the market. These false breakouts are most likely the direct result of the games market makers play. - 23167
About the Author:
Mr. Ahmad Hassam is a Harvard University Graduate. He is interested in day trading stocks and currencies. Know These Forex Broker Games. Learn Forex Trading!
posted by X - Men @ 4:48 AM
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