The M Word

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Est. 12480 Hours and Counting
Markets, a true reflection of price discovery? or are they??

Short answer is of course NO.

We've all heard of Manipulation, but what does it mean, how often does it occur and how do we deal with it?

The market itself has a way of dealing with price imbalances, this is the very reason we try to trade it, and the reason why systematic approaches to trading often fail even if they back tested profitably.

That I would say is fair play,its the very essence of a free market and markets wouldnt exist without it.

This is where it gets dark and dirty. Market Makers manipulate price on larger daily swings to stop out swing traders and position themselves favorably in the next move. These manipulations can often be anticipated and traded around.

However, brokers do there own smaller manipulations to wipe out their customers stops, a perfect example of this was on the EURUSD recently when comparing two platforms clearly shows how low they will go when its profitable to do so.

Take a look at these charts and youll see what I mean, top chart is IG Index bottom chart is Forex Ltd.


In my first year trading, I used to try to trade manipulation, meaning I would wait until I spotted stop taking before taking a position, but that didnt work because you often miss optimum entries and some moves entirely.

Since then Ive tried a 30 pip stop but that doesnt always work, I can be right on the direction but still get tagged out.

Ive followed Martin Cole, Steve Mauro, Sam Seiden and others but none of them have practical solutions for dealing with one of our greatest challenges in my opinion.

My question to the Gurus out there is, how do we deal with this unfair disadvantage?
Two ways:

If the problem is isolated to your broker, switch to a broker that runs under the agency model instead of being a market maker. That doesn't mean all market makers are bad, some are rather good actually, but others give the whole group a bad name by abusing the business model to line their pockets.

Or, if the problem is systematic of all brokers since it's related to the major liquidity providers running common stop levels (which is most likely the case when you see runs like this,) then the answer would be to expect it and adjust your entry accordingly (place it where stops would be expected to group up instead of trying to give your stop from a worse price entry more room.) This might mean you miss some decent trades, but the ones you get will have a better RR.
interesting, so if youre suggesting to wait for the stop raid before entering, how would you have dealt with this scenario where the second test of the London high could have been a stop raid?

For example, if entering on the second test of the LO high (as I did) would you have used a wider than 30 pip stop (10 pips beyond the next stop level) or a tighter stop (reducing it by the NY session?) or neither..
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