Market Makers,Know the patterns!!!

In this article, we want to know the definition of some patterns and signals. How to use them to become a better and more successful market maker. (MM)

Patterns and signals when seen in combination provide very high probability setups.

The more you are able to identify the patterns and strategies, a better market maker you can be.

Overall though you, as a market maker, must consider:
1. Price action and the patterns
2. The count
3. The timing
4. The indicators

PATTERNS & DEFINITIONS:

EMA PATTERN:

An Exponential Moving Average applies weighting factors which decrease exponentially. The weightings of old data point exponentially decrease giving much more importance to recent observations while still not discarding old observations entirely.
Moving averages, when used in the appropriate way (i.e. in the context of the market maker methodology) can give:
1. A true reading of the market direction
2. A reading of market momentum
3. Entry and exit signals
4. Moving support and resistance points
5. Targets for a take profit

THE ANATOMY OF THE HALF BATMAN PATTERN:

This pattern commonly occurs at a Level I Consolidation and is similar to the Straight Away trade. Essentially, there is no need for a 2nd move back to the high because there are already traders trapped from further up and the MM does not want to provide an opportunity for them to close their trade at a profit or even a small loss. Instead, the price is moved down.

 

ANATOMY OF “M” AND “W” FORMATION:

The M or W pattern is a frequently identified pattern and is a particularly good reversal pattern. The following diagram shows the reasons for the movement in terms of the market makers use the pattern. It is also worth
noting that a RRT pattern is really a M or W pattern that has occurred more quickly and thus has the same effect.
The time gap between the 2 peaks of the M or W will usually last for somewhere between 30 and 90 min (though occasionally longer). The fastest occurs when the pattern is defined by a railroad track (in other words
15 min up followed by 15 min down). Longer periods are also common and used to gradually accumulate more positions of traders who are enticed into taking trades in the direction of the technical trend.

 

M Pattern

TRAPPING VOLUME:

At a peak formation low or a peak formation high, several spikes may appear which are all apparently contained by a trend-line. But what is really happening here? The MM is trapping volume and it is important to notice that each subsequent spike is not lower (or higher) than the previous so that any new trades taken in the direction of the spike do not have an opportunity to become profitable. They become trapped. So in the example below, the peak low is identified and followed by 2 further downward spikes. The important feature to notice is that each of the spikes is higher than the previous which prevents short position holders from taking any profit whilst potentially encouraging new shorts in this region.

 

Trapping Volume

The wedge redefining as a volume trapping mechanism

RRT  PATTERN (RAILROAD TRACKS):

RRT trick people into going in the direction of the 1st candle. But it is snatched away quickly on the next. They are really an anomaly of an M or W pattern. The pattern simply occurs more quickly so it is compressed into a RRT.
The same compression “trick” can be observed when and M/W pattern in a 15 min is viewed on an hourly or 4 hourly time frame.

 

WEEKLY PRICE MOVEMENTS:

The weekly pattern does not imply the use of a weekly time frame. It refers to the pattern that is seen in a 15, 60 or 240-minute chart for a week. However, MMs also have seasonal variations of price movement and so it can be seen on longer time frames, though it is probably too slow to be traded effectively.

 

 

 

 

HIGH TEST PATTERN:

The high test pattern occurs at the price of yesterday’s high. For example, the general technical trend may be demonstrating an uptrend but as price reaches yesterday’s high a reversal pattern is seen. Any of the Candlestick patterns are possible in this region and all mean the same thing. You should change direction and trade against the technical trend.

 

There are many other patterns and signals that you can know them and try to use them in your decision making. if you are interested in this topic and you wish to know further you can watch this video or click here or here.