How To Know Price Levels To Easily Identify Reversal Points In Forex Now

  

 I'm gonna show you in a minute how to properly identify price levels in forex. Because if you're not doing it this way, you're largely missing out!

The forex market is vast and complex, driven by various forces including central banks, institutional investors, retail traders, and market makers.

 Among these, market makers play a crucial role in providing liquidity and shaping price movements.  

They set psychological support and resistance levels at the beginning of the week and then trade away from there, applying mid-week reversal in the form of M or W. 

Then, this M or W becomes the anchor pattern of the market maker cycle.

Understanding market maker cycles can offer significant insights into price behavior, enabling traders to make more informed decisions.

Who Are The Market Makers?

Market Makers or big Dogs are financial institutions or individuals that provide liquidity by being willing to buy and sell securities at any time. In forex, they create a market for currency pairs by quoting bid and ask prices.

They profit from the spread-the difference between the buying and selling price-and can influence short-term price movements.

Simply put; for there to be business in foreign exchange one has to execute against the other. 

Therefore, market makers work as intermediaries in sales and purchases between two individuals or entities and two currencies.

 For example, a bank will function as a Market Maker when it collects sellers of the US Dollar to then sell to investors who want to buy the US Dollar with the Australian dollar in exchange. 

The value of each of the currencies is often based on the current market value.

Market Makers are also traders like you, their objective is to make money. They often set the stage with their strategies to trade against you the retail trader.

The major difference between them and retail traders is that they have the ability and access to massive volumes, to move the market price at their will.

So for these guys to make money, they aim to buy at a lower price and then sell at a higher price. They tend to achieve this by being tricky such as: 

1. Inducing Retail Traders to Take Positions.

What they do is use a range of price actions to 'trick' retail traders into taking a position in a certain direction but then reverse it again. 

It means that the liquidity providers (the MMs) can sell a specific currency at a certain price and then buy it back at a lower price when the retail trader feels too much pain from the currency value moving backward and wants to sell it back again, Example, by placing the stop loss order.

2. They create fear and panic to induce retail traders to become emotional and think illogically.

 This often entails: 

• 'Inexplicable' price action

• A quick move of the price 

• Spike candles

• News releases

3. They often hit the stops and clear the board

This action forces traders into 'margin trouble' and ultimately Lose the amount of capital they decide to risk.

Market Makers Cycles

Market Maker cycles refer to the repetitive patterns in price movements caused by market makers' activities. These cycles can be divided into three phases: 

1. Accumulation Phase 

Market makers accumulate contracts, often moving prices sideways to gather liquidity without causing significant price changes.

Characteristics: 

Low volatility, tight trading range, and deceptive price moves to shake out retail traders.

2. Manipulation Phase 

After the dealer accumulates contacts at the beginning of the week he will pretend to move the price one way to hit the stops, and then move the other way after he has taken your stops. 

Thus, Market Makers manipulate prices to trigger stop-loss orders and induce panic or euphoria among retail traders.

Characteristics:

Sudden spikes or drops in price, high volatility, and false breakouts.

3. Distribution Phase

At this stage, the market makers would resume the true trend at higher prices in three levels, causing a significant trend in the market.

Characteristics:

Clear directional movements, increased volume, and larger price ranges.

How to Identify Market Maker Cycles

To identify market Maker cycles, you should first mark out the first 8 hours of the day as a day trader. That is the accumulation phase.

You can use these techniques: 

Technical analysis: 

Using charts to spot accumulation, manipulation, and distribution patterns.

Volume Analysis:

Observing volume changes to identify accumulation and distribution phases.

Order Flow Analysis:

Monitoring order book data to detect market Maker activities.

How to Identify Price Levels 

To trade profitably it is very important to vividly know what part of the market maker cycle the price is in. As we mentioned earlier, the dealer applies a mid-week reversal in the form of M or W. 

This is the anchor pattern of the cycle, which you can identify both on multi-day and intra-day views. Being able to count the 3-day patterns, intra-day patterns and weekly patterns is necessary. 

If you understand these 3 things you can rest assured that it is better than 90 or 95% accurate. 

These liquidity providers (market Makers) form levels or zones to trap traders, hit stop losses, and book profits.

 As a trader, your first step is to identify the levels particularly the current place in the cycle. 

We describe the levels or zones under the following headings: 

1. Peak Formation High

The highest point of the price on the chart is the peak formation. The dealer pulls the price away quickly and forms out the high test which becomes the M pattern.

2. Level 1 and Consolidation 

After the price drops from the M formation, it falls into a new zone and reaches a level 1 consolidation. During this consolidation phase, the dealer hits stop-loss up, hits stop-loss down and then drops it again. 

You do not trade against the M formation out of level 1 consolidation, because you'll likely lose the trade.

3. Level 2 Consolidation 

Price drops further from the level 1 consolidation to level 2 and again, into a new area of consolidation which is the level 2 Consolidation. 

Each level will likely have a corresponding stop-hunt and consolidation. 

Again, another stop-loss hits up and hits down, then drops to level 3. 

Level 3

Having reached level 3, the objective is slightly different. The price will drop to demonstrate more selling movement by satisfying various standards of traders.

However, the liquidity providers then pull the price away quickly, move it up and book a profit. In addition to this, if you observe that price is chopping around that's a sign that a reversal is imminent.

5. Peak Formation Low

Following Level 3, a new Peak Formation Low is established and the 

cycle starts again. 

This becomes an area where you are targeting to 

buy with the Market Maker, even though all of your other indicators and prior learning will have told you that this is still in a sell zone. 

So you will

be buying against what you have learned previously; against the rest 

of the other traders; you will be buying against the trend.

Back testing 

Studying historical market data and case studies can help solidify the understanding of market maker cycles. Analyzing how market makers have historically influenced price movements and how traders reacted to these cycles it's very imperative. 

Conclusion

Understanding market maker cycles provides a powerful framework for interpreting price levels and making informed trading decisions.

 By recognizing the patterns of accumulation, manipulation, and distribution or true trends, traders can gain a significant edge in the forex market.

 Remember, the key to success lies in continuous learning and adaptation to the ever-changing price dynamics.

Now it's your turn, do you still find it difficult to understand price levels? Let us know in the comment box below. And if you find the post helpful please share.

If You Enjoyed This, Take 5 Seconds To Share It

• 
• 
• 
• 
• 
•