Forex Market Maker Behavior

Overview

This lecture provides an in-depth introduction to market maker behavior in Forex trading, focusing on understanding patterns, timing, and psychological traps. The aim is to help traders align their strategies with market maker actions for long-term success.

Welcome & Mindset

The course is community-driven and encourages participants to set aside previous trading beliefs and approaches for the duration of the training.
The instructor shares a personal story about helping starfish on the beach to illustrate that every individual matters and that success is possible for each participant.
Trading is highly emotional; participants are advised to avoid live trading during the class to clear their minds and fully absorb the material.
Active participation, including homework and diligent note-taking, is essential for mastering the concepts and achieving success.
Students are encouraged to be open-minded, avoid mixing other systems with this method, and focus on learning the presented approach.

Market Maker Objectives & Tools

Market makers aim to:
- Induce retail traders to take positions by creating enticing chart patterns or breakouts.
- Create panic and fear to prompt irrational decisions, such as lifting stops or over-leveraging.
- Ultimately profit by taking funds from traders, especially by targeting those in margin trouble.
Tools and tactics used by market makers include:
- Re-quoting trades at less favorable prices.
- Triggering stop losses across a range with a single action.
- Widening spreads to pick up stops and prevent profitable exits.
- Managing price highs/lows to maximize dealer profit and clear the board of stops.
- Monitoring open positions, margin levels, and trader vulnerabilities via dashboards.
Not all brokers are dishonest, but manipulation is common. It is recommended to choose regulated, bank-backed dealers to reduce risk.
Market makers have access to tools that allow them to see who is in margin trouble and to target those traders with specific moves.

Market Maker Patterns & Cycles

Market makers set up "trap moves" at the beginning and end of sessions and weeks, jamming traders into poor positions and forcing emotional decisions.
The "three-day, three-level cycle" is a core concept: price typically moves in three distinct pushes (up or down), with a mid-week reversal often occurring on Wednesday.
Reversal patterns, such as M (double top) and W (double bottom) formations, frequently occur at session changes. Multiple touches of a high or low, especially a third failed attempt, often signal an imminent reversal.
Market makers use aggressive moves and false breakouts to trigger stops and trap traders, then reverse the market direction.
The cycle is observable on both intraday and weekly timeframes, and understanding it allows traders to anticipate market maker behavior and avoid common traps.
Market makers use news events and geopolitical developments as excuses to complete their patterns, often gapping the market or creating spikes to trigger stops.

Timing and Sessions

Understanding session timing is critical. All times are in New York (Eastern) time:
- 5:00 pm: High/low reset; "dead gap" period until 8:30 pm.
- 8:30 pm – 3:00 am: Asian session (accumulation and range-building).
- 3:30 am – 9:00 am: London session (major moves and reversals).
- 9:30 am – 5:00 pm: New York session (aligns with US equities open; most trades should be closed by 1:00 pm).
"Brinks trade": A high-probability reversal setup that occurs at 3:45 am (London open) or 9:45 am (New York open) if a reversal pattern (M or W) forms at these times.
Session changeovers are key moments for false moves and reversals. Market makers often use these times to trap traders and shift the market direction.
The market structure is built around these session times, with specific behaviors and patterns expected at each session open and close.

Chart Patterns & Strategy Rules

Avoid trading against the established market maker trend at level one, especially after a strong reversal or aggressive move.
Three pushes to a high or low, with a failed breakout on the third attempt, are strong signals of an imminent reversal.
Set stop losses beyond obvious highs/lows, not at textbook levels, as these are commonly targeted by market makers.
If a trade does not move into substantial profit within two hours, exit for a small profit or loss. Extended accumulation phases can lead to another stop hunt against your position.
Use ADR (Average Daily Range) to estimate likely move sizes and identify potential reversal levels.
Recognize that consolidation zones are often used by market makers to accumulate contracts and set up the next move, not as genuine support or resistance.
The most reliable trades are:
- Stop hunt high with M formation (short).
- Stop hunt low with W formation (long).
- Straightaway rise or drop (aggressive move to finish off traders in margin trouble).
Only four main trade setups are needed for consistent success; mastering these is more effective than using complex indicators or systems.
The market is structured so that aggressive moves (vector candles) are used to induce traders to chase the wrong direction, while slow, steady moves are the real market maker intentions.

The Three Key Elements: Pattern, Timing, Levels

Pattern: Recognize the market maker’s behavioral patterns, especially M and W formations, and the three-level cycle.
Timing: Align trades with session opens, closes, and key reversal times (especially 3:45 am and 9:45 am).
Levels (Count): Track the three levels of rise or fall within a cycle. Level one and three are the most aggressive and are driven by the market maker; level two is more market-driven.

Market Structure and Session Behavior

Each day, the market sets an initial high and low (IHOD/ILOD) after the 5 pm reset.
The Asian session is typically used for accumulation and range-building, with little genuine movement.
Major moves and reversals are engineered at the London and New York session opens, often using false breakouts and aggressive candles to trap traders.
The end of each session often sees consolidation, trapping traders in poor positions for the next session or day.
Weekly cycles mirror daily cycles, with peak formation highs/lows established early in the week and reversals occurring midweek.

Stop Hunts, Spreads, and Dealer Manipulation

Market makers deliberately target stop loss clusters by spiking price 25–50 pips beyond consolidation zones.
Spreads are widened at key moments to ensure stops are triggered and to prevent traders from exiting profitably.
Dealers can set the high/low of a bar to trigger stops or avoid pending orders, giving them a significant edge.
Margin call levels are monitored, and "straightaway" trades are used to finish off traders who are close to being stopped out.

Psychological Traps and Trader Behavior

Market makers exploit common trader psychology: fear of missing out, hope for break-even exits, and reluctance to accept losses.
Patterns such as three pushes to a high/low, repeated tests of a level, and aggressive spikes are designed to induce emotional decisions.
Traders are often lured into taking positions at the worst possible times, especially after a third failed attempt to break a level.
The cycle of trapping, consolidating, and reversing is repeated daily and weekly, preying on inexperienced and emotional traders.

Key Terms & Definitions

Market Maker: The entity providing liquidity and often trading against retail traders, with the goal of profiting from trader losses.
Trap Move: Market action designed to lure traders into poor positions, often at session or week openings/closings.
Stop Hunt: A sharp move intended to trigger stop losses and collect liquidity from retail traders.
Brinks Trade: A reversal trade at the session open, confirmed by a specific pattern (M or W) and timing.
M/W Formation: Double top (M) or double bottom (W) reversal chart patterns, signaling a likely change in direction.
Level/Count: Each significant move (rise or fall) in the three-level cycle; understanding the count helps anticipate reversals.
ADR (Average Daily Range): A measure of the typical volatility of a currency pair, used to estimate move sizes and reversal points.
Peak Formation High/Low: The highest or lowest price point for the week, serving as a key area for potential reversals.
Vector Candle: An aggressive, fast-moving candle used by market makers to trigger stops and induce traders to chase the move.
Consolidation Zone: A period of sideways movement used by market makers to accumulate contracts and set up the next move.

Action Items / Next Steps

Complete the assigned homework: On EUR/USD and GBP/USD charts, label all pattern elements discussed in the lecture, including M/W formations, vector candles, three-level moves, consolidation zones, pins, timings, and other relevant features.
Email marked-up screenshots of your charts to [email protected] before the next class for review and feedback.
Review the provided glossary and become familiar with all key terms and trading session times.
Do not trade live money until the course is complete and you are confident in applying these strategies.
Use the class forum and recordings to reinforce learning, ask questions, and clarify any uncertainties.
Focus on observing market maker behavior in real time, rather than relying on traditional technical analysis or indicators.
Remember: Success comes from understanding and aligning with market maker patterns, timing, and psychology—not from mixing multiple systems or relying on standard retail trading advice.

Additional Notes

The instructor emphasizes the importance of patience and taking breaks to process the material, as the concepts require time to internalize.
Homework is considered crucial for success; those who consistently complete it tend to achieve better results.
The course discourages reliance on traditional support/resistance, technical indicators, or retail trading systems, as these are often used by market makers to trap traders.
The ultimate goal is to develop the ability to quickly identify market maker patterns, time entries and exits with session cycles, and avoid emotional trading pitfalls.