Market makers influencing price

[bfd]

Hi all,

I'm reading a book at the moment(7 trading strategies by Grace Cheng) which is suggesting that breakouts often fail because market makers use their large financial clout to influence the price to cause the breakout to fail.

Have other people had lots of experience of breakouts failing and the price ending up doing the opposite of what the crowd expects it to do?

Thanks.

 

[UKtradergirl]

Some breakouts fail, others carry on.

News events can cause false breakouts. The masses react to the news- price goes shooting up. All the people who understand how it works start selling as the price shoots up with the news- as generally price shoots back down again just as quick as it shot up, before continuing on it's way as before.

This is just an example of what can happen- i'm not saying it can happen every time, but it is a common pattern.

 

[gooseman]

no doubt mm'ers do influence price movements. usully either depress a price or catch the wave of a move.....it's obvious when you think about it. it's the hedge.

 

[montmorencyt2w]

One tip I have read is always to think about who is on the other end of your trade. If it's just another punter, well, ok. If it's a pro, watch out. He is likely to take your stop out. Not individually, of course, but they know where all the amateurs' stops are likely to be.

The trick would be to think and trade like a pro (and no, I don't know how to do that... )



Regards,
M.

 

[bfd]

One thing that I've started noticing on short time frames is that as the price reaches an obvious support or resistance line, the price can suddenly shoot through it before coming back very quickly.

I guess this might be the market makers trying to activate retail traders stop losses.(people who have entered a trade expecting price to bounce off the trend line)

 

[Alibubble]

There are definitely many factors when it comes to whether or not a currency is going to change its current trend or stay the same. Most of the pro traders are aware of this, and like someone said earlier they try to capitalize on the newbies out there and react according to what they are probably going to do.

 

[montmorencyt2w]

I guess this is what VSA - Volume Spread Analysis is all about - trying to get you to think about where the pros are, and try to trade with them and not against them - they will always beat you. Lots of fascinating stuff about VSA around, both on T2W and other places around the web. Looking back, it seems that T2W member "VSATrader" was the local VSA guru here at one time, but sadly, he seems to have left the building on a long-term basis. Still worth checking out his posts though.

However, I've also seen a comment to the effect that in the modern world of automated trading, VSA is no longer as relevant as it was in the days of its pioneers (basically Richard Wyckoff, later developed by Tom Williams). I don't know enough to know to what extent that is true. I do think that volume is almost certainly still important though. One of VSATraders points was that the volume data your broker may give you, while better than nothing, won't really be enough, and you need a "proper" data feed. The one he used combined data from hundreds of brokers, for example. This sounds like sense to me, not that I pretend to be an expert in this area. It just sounds like another approach worth following up.

You can find free PDF versions of Tom Williams' famous book around on the web, but I am not sure if they are the full book. I've seen one UK-based site advertising signed copies for ~£50.

Regards,
M.

 

[Alibubble]

An interesting thing would be to figure out what all the automatic traders out there are doing and try to beat them by trading a certain way. There are a lot of automatic trading products out there, some of them are probably very similar, so this might be easier than it looks. I bet someone with the resources to do this sort of thing could make some pretty good trades.