Smart money often uses patterns like the Forex Master Pattern to bait traders, manipulating them into taking positions that ultimately benefit larger players. Here’s how this tactic works:
1. Establishing Key Levels: Smart money first identifies or creates key levels where retail traders tend to place buy or sell orders—levels like support, resistance, or recent highs and lows.
2. Creating a Pattern: Through the Forex Master Pattern (which typically involves consolidation, breakout, and trend phases), smart money stages price movements that align with common trading patterns. This includes forming a range where the price oscillates within defined highs and lows, creating a false sense of stability or predictability.
3. The Bait—False Breakouts: Once retail traders are “hooked” on a pattern, smart money initiates a breakout or breakdown, luring traders into taking positions based on these moves. For instance:
• Bull Trap: They may push the price slightly above resistance, triggering buy orders, then quickly reverse it, causing retail traders to lose out when prices drop back.
• Bear Trap: Conversely, they might drive the price just below support, triggering sell orders, before reversing back up.
4. Executing Stop Hunts: Smart money often targets common stop-loss levels placed by retail traders. They manipulate the price just enough to trigger these stops, taking advantage of the liquidity provided by these orders to fuel their own positions.
5. Riding the Trend: After exploiting retail traders through these false breakouts or breakdowns, smart money then initiates the actual price move (bullish or bearish), capitalizing on the momentum now cleared of retail resistance. This lets them accumulate or distribute positions at optimal prices.
By leveraging these tactics, smart money uses the Forex Master Pattern to systematically draw retail traders into the market, forcing them into unfavorable trades, then profiting from the resulting liquidity and trend.
I wont be focused on chart structure.