Last updated on Nov 26, 2023
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Market makers and institutional players
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Volume analysis
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Order flow analysis
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Candlestick analysis
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Market profile analysis
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Sentiment analysis
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Here’s what else to consider
Market movements are influenced by various factors, such as supply and demand, news, sentiment, and technical analysis. However, some of the most powerful drivers of price action are market makers and institutional players, who have the ability and resources to manipulate the market to their advantage. How can you identify the role of these actors and use their signals to improve your trading performance? In this article, we will explore some of the techniques and indicators that can help you spot the footprints of market makers and institutional players in market movements.
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- Aakash Sukheja Sharing stories on stock markets, marketing, and business. #BusinessNerd podcast host (Link in bio). And helping…
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- Mohammadreza Naeimi Product Manager | Customers Experience | Product Development | The Man who loves Marketing
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1 Market makers and institutional players
Market makers are entities that provide liquidity to the market by quoting bid and ask prices for a certain asset, and profiting from the spread. They can be brokers, banks, or exchanges that facilitate trading for other participants. Institutional players are large investors, such as hedge funds, pension funds, or mutual funds, that trade in large volumes and have significant impact on the market. Both market makers and institutional players have access to more information, capital, and leverage than retail traders, and can use various strategies to manipulate the market, such as spoofing, front-running, or stop hunting.
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The most successful and applicable way to trade with acknowledgement to the market makers are through finding the highest walls of open interest on the chain in my experience. In their best interest, they are not incentivized to pay out at the highest level. Taking the price of the option contract multiplied by the open interest will show the money on the line for each strike level. For those with high OI and imbalanced to the opposite side of the chain, it creates a wall that the market isn't expected to break on the bias the market makers will not allow it. A put wall acts as a support and a call wall acts as a resistance and with combined walls we can suggest the expected change for the security within a specific expiration aswell.
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Exchanges have market surveillance algorithms to detect market abuse whether it is done by a marketmaker or other trading participant.A Marketmaker's edge is generally low latency. They have an expensive infrastructure to receive and act on market data in microseconds or even nanoseconds. To be able to act on signals like that, you too would need a low latency infrastructure
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- Yemmie Olaleye (CMSA®,FMVA®,FTIP™) ✪ 🎖️ 219x LinkedIn Top Voice💡 🔸 Financial Market Analyst/Educator🔸 Executive Coach🔸Futurist🔸Thought Leader🔸FPWM™🔸BIDA®🔸CBCA®🔸PMEC🔸BMEC🔸ESGP🔸 Fellow @ African Leadership Group
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Market makers are the major participants in the market. Since they are the big guys, retailers suffer loss if not seeing from the MM's perspective each day.Through manipulations at higher levels of trading to emotional rollercoaster. The significance of MMs can not be over stretched in this context, they are all about the movement and basis of many price researches in the market till date.
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2 Volume analysis
One of the most important indicators to identify the role of market makers and institutional players in market movements is volume. Volume measures the amount of trading activity for a given asset, and reflects the level of interest, conviction, and participation in the market. By analyzing volume patterns, you can infer the intentions and actions of market makers and institutional players, and anticipate their impact on price. For example, high volume spikes can indicate strong buying or selling pressure, while low volume can signal consolidation or manipulation. You can also use volume indicators, such as the On Balance Volume (OBV), the Volume Weighted Average Price (VWAP), or the Chaikin Money Flow (CMF), to gauge the direction and strength of the volume flow.
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- Aakash Sukheja Sharing stories on stock markets, marketing, and business. #BusinessNerd podcast host (Link in bio). And helping companies with content marketing strategies.
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Volume plays a crucial role in understanding market makers' moves. If I tell you that look for 5 red candles post a doji, that would be me telling you something based on ONE instance. Here's where you can go extra level to look for those players' tactics: After a huge upswing/downswing, how soon does it take for the stock to move in that same direction? More often than not, bull rallies will be sold into by smaller volumes that are hidden. Which can be a false positive unless more volumes are added. It's the opposite for crashes. The baseline is: market makers who you think are smarter, are just people trying to survive in any market condition. If you have the same goal, you will lose less and probably make more than you usually do
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- MyBillion Inc Trader/Trainer/Serial Entrepreneur
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People say "Bhav Bhagwan che" Meaning price is God.I would put it this way - if Price is God then Volume is the Swaroopa " Character, intention of the God"If Price is a number then with Volume it becomes value, profit or loss ? Think
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- Yemmie Olaleye (CMSA®,FMVA®,FTIP™) ✪ 🎖️ 219x LinkedIn Top Voice💡 🔸 Financial Market Analyst/Educator🔸 Executive Coach🔸Futurist🔸Thought Leader🔸FPWM™🔸BIDA®🔸CBCA®🔸PMEC🔸BMEC🔸ESGP🔸 Fellow @ African Leadership Group
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The volume is like the unknown essence for many traders as it owns the key critical part many traders are always waiting for. If we talk about liquidity, it is volume that is not seen but expecting to see its impact. At the end if retailers have an indicator that shows real time volume in the market then almost every trader will make million bucks $$ a day. However, the volume indicators seen and known are not holy grail still. In conclusion, volume is a great insight for the MMs.
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3 Order flow analysis
Another way to identify the role of market makers and institutional players in market movements is to analyze the order flow. Order flow is the data that shows the size and direction of orders placed in the market, and reveals the supply and demand dynamics behind price action. By analyzing order flow, you can spot the areas of liquidity, support, and resistance in the market, and identify the signals and traps set by market makers and institutional players. For example, you can use tools such as the Depth of Market (DOM), the Time and Sales (TAS), or the Footprint Chart, to visualize the order flow and detect the imbalances, clusters, and anomalies in the market.
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- Christopher M. Ricart, MBA 📈 Independent Trader | 🚗 Transportation Strategist | 🚦Incident Management Specialist
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Order flow analysis has gained prominence in recent years as technology has improved the granularity and accessibility of trading data. It's not limited to traditional financial markets like stocks and commodities but has also found applications in cryptocurrency markets. With high-frequency and algorithmic trading playing a significant role in modern financial markets, order flow analysis is a valuable tool for understanding market dynamics and predicting short-term price movements. It allows traders to access real-time order flow data, enabling them to react swiftly to changing market conditions and capitalize on fleeting opportunities.
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- Yemmie Olaleye (CMSA®,FMVA®,FTIP™) ✪ 🎖️ 219x LinkedIn Top Voice💡 🔸 Financial Market Analyst/Educator🔸 Executive Coach🔸Futurist🔸Thought Leader🔸FPWM™🔸BIDA®🔸CBCA®🔸PMEC🔸BMEC🔸ESGP🔸 Fellow @ African Leadership Group
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The MMs are regarded with the schematics in the orderflow created in the market, as the that shows little of their intention before or after manipulation.Institutional orderflow (Iof) will help to identify trendy rally, impulsive moves at the same time the earliest reversal time in the market through series of different price representation, e.g Change of Character or Shift in Market Structure, stophunt that is common today and so on. If this paradigm is understood, long and short market opportunities would be easier to spot in spot, crypto, stocks and commodities trading.
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4 Candlestick analysis
A third technique to identify the role of market makers and institutional players in market movements is to analyze the candlestick patterns. Candlestick patterns are graphical representations of price action that show the open, high, low, and close of a given period, and convey the emotions and psychology of the market. By analyzing candlestick patterns, you can recognize the signs of accumulation, distribution, reversal, or continuation in the market, and identify the clues and hints left by market makers and institutional players. For example, you can use candlestick patterns such as the hammer, the shooting star, the doji, or the engulfing, to spot the potential turning points, breakouts, or fakeouts in the market.
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- Mohammadreza Naeimi Product Manager | Customers Experience | Product Development | The Man who loves Marketing
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In my opinion, it is better to know the behavior of the market, they give us the least time error. But only analysis on candles can't help you, news, knowing the correct areas of resistance and support in different time frames, etc. together can give you a correct strategy.
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- Yemmie Olaleye (CMSA®,FMVA®,FTIP™) ✪ 🎖️ 219x LinkedIn Top Voice💡 🔸 Financial Market Analyst/Educator🔸 Executive Coach🔸Futurist🔸Thought Leader🔸FPWM™🔸BIDA®🔸CBCA®🔸PMEC🔸BMEC🔸ESGP🔸 Fellow @ African Leadership Group
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Candlesticks are one of the graphical representation of price movement on the market chart.Candlestick has its history rooted back to the 18-century in Japan. Hence, Japanese candlesticks.Useful in technical analysis for different patterns; continuation or reversal.The interpretation of different candles at area of value will determine what a trader will do in the market. They are highly useful in technical analysis. Platforms like MT4/5 will allow you to select your desired colour for the bullish and bearish candles representing buy and sell movement in the market.
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- Momen Elsady Wealth Management Expert | Financial Strategist | Advanced Options Trader
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Japanese Candlesticks provide an excellent piece of the Technical Analysis puzzle. Each candle gives you the opening price, the low of the period, the high of the period and the closing price. Because markets are fractal (they display similar properties in all time frames) the "period" of an individual candle may be daily, weekly, monthly and so on. Or with real-time data feeds you can use one, five or ten-minute or hourly candles, etc. What period you choose depends on the timeframe you want to trade. Candlesticks can give you the answer to the most important question in trading (who control the market?)
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5 Market profile analysis
A fourth method to identify the role of market makers and institutional players in market movements is to analyze the market profile. Market profile is a technique that shows the distribution of price and volume over time, and reveals the structure and behavior of the market. By analyzing market profile, you can determine the value area, the point of control, and the market mode of a given asset, and identify the opportunities and risks in the market. For example, you can use market profile to locate the areas of high and low volume, the areas of balance and imbalance, and the areas of acceptance and rejection in the market.
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- Momen Elsady Wealth Management Expert | Financial Strategist | Advanced Options Trader
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Market Profile is like a special chart that helps traders see how prices go up and down in the market. It shows how many trades happen at different prices. This helps traders understand what most people are doing, which is important for making good decisions. Market Profile is useful for both short-term and long-term trading. It changes as the market changes, so traders always have the latest information.There are two main types of trades based on the Market Profile:Proactive: a break of the previous balance area in search for a new fair price;Responsive: a return to the fair price area from unreasonably low or high prices.
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- Yemmie Olaleye (CMSA®,FMVA®,FTIP™) ✪ 🎖️ 219x LinkedIn Top Voice💡 🔸 Financial Market Analyst/Educator🔸 Executive Coach🔸Futurist🔸Thought Leader🔸FPWM™🔸BIDA®🔸CBCA®🔸PMEC🔸BMEC🔸ESGP🔸 Fellow @ African Leadership Group
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Market profile is a graphical price representation that covers a period of time on the chart.This is one of the uncommon way of analysis that large percentage of technical trader do not consider powerful in analysis. I personally love running a 3 months market profile, quarterly profile for the year and that helps to see the price distribution. To see rejection zones, Areas of value and point of control. This makes it easier to compliment my technical analysis in more awesome ways, and it is truly profitable.
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6 Sentiment analysis
A fifth approach to identify the role of market makers and institutional players in market movements is to analyze the sentiment. Sentiment is the measure of the overall attitude and opinion of the market participants, and reflects the level of fear, greed, optimism, and pessimism in the market. By analyzing sentiment, you can gauge the mood and expectations of the market, and identify the extremes and contrarian signals in the market. For example, you can use sentiment indicators, such as the Put/Call Ratio, the Volatility Index (VIX), or the Commitment of Traders (COT) Report, to assess the level of bullishness or bearishness, confidence or uncertainty, and positioning or exposure in the market.
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- Momen Elsady Wealth Management Expert | Financial Strategist | Advanced Options Trader
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I agree that the Put/Call Ratio and the Volatility Index (VIX) help with sentiment analysis. However, for effective trading, it's important to know when to enter and exit trades by understanding sentiment strength and possible trend changes. I find the following indicators helpful for trading: 1. Keltner Channel for assessing overall momentum.2. Stochastic and CCI for identifying overbought and oversold conditions, as well as reversal signals.
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When I think of sentiment analysis, I don’t necessarily connect it to the role of market makers and institutional players, but rather the more crowd sentiment towards the market, which, as we know, in the past have been large indicators of where the market may move next. The VIX for example, is a large contrary indicator, which we see as the fear gauge measuring the market volatility and overall investor sentiment. A spike in VIX may suggest an impending market decline, and a low level of volatility could indicate a more positive future market sentiment. On my VIX charts I have 14-16 marked as a low volatility, level 16-21 normal and above 25 as panic.
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7 Here’s what else to consider
This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?
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- MyBillion Inc Trader/Trainer/Serial Entrepreneur
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David vs Goliath story from the Bible Everyday once the market opens look at the Volume of similar priced option strikes..Say for banknifty today 25 Oct 2023 morning 930 42500 ce and 44000 pe were similar priced.42500 ce had a Volume of 2 lakhs whereas 44000 pe had a Volume of 75000 . 42500 ce is golliath and 44000 pe is David in terms of Volume. Initially market went up David got hurt thrice and then final laugh was of David from around 550 odd made 1300..This happens most of the daysDavid has nothing to loseGoliath thinks David is too small to hit and for David - Goliath is too big to miss !Think
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Careful analysis of these trading behaviors empowers market participants with valuable insights into the underlying supply and demand dynamics, aiding in making well-informed trading decisions amidst the complexities of financial markets.
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