Showing posts with label Larry Williams. Show all posts
Showing posts with label Larry Williams. Show all posts

Wednesday, February 28, 2024

S&P 500 vs VIX and Seasonal Patterns

Corrections and short-term market peaks often coincide with exceptionally low levels of market volatility.

 
Beware of the Ides of March: This year also coincides with the seasonal decline during presidential election years where the sitting president is running. Support levels to watch in the S&P 500: 4800 old ATH and 4600 near summer 2023 highs.
 

February’s last trading day historically bearish. DJIA and S&P 500 have been down 9 straight and 11 of the last 12. NASDAQ has tried to buck the trend, up 3 of last 4 years. Potential setup for historically bullish first trading day of March.
 

Monday, December 18, 2023

2024 US Stock Market Outlook │ Larry Williams

 
Larry Williams' 2024 projection for US Stocks:
 
First week of January to last week of February - UP
 Last week of February to last week of April - DOWN
 Last week of April to last week of Juli - SIDEWAYS-TO-UP
First day to last day of August - UP
First week to third week of September - DOWN  
  Third week to fourth week of September new high of the year - UP
Fourth week of September to first week of November - SIDEWAYS-TO-DOWN  
 First week of November to first week of December - UP
 First week to third week of December - DOWN
 Third week to last trading day of December printing the yearly high - UP
 
The December 2023 Low is a key price level in Q1 of 2024. 
 
Larry Williams identified June 2024 in the current decennial pattern 
 as "the sweet spot with 90% accuracy" to buy and hold until December 2025.
 
 

Reference:

Sunday, October 1, 2023

The ‘ICT Power Of 3’ Concept & ‘ICT Killzones’ | Rounak Agarwal

The ‘ICT Power Of 3’ concept is a key component of any trading strategy or model developed by Michael J. Huddleston a.k.a. 'The Inner Circle Trader' (ICT), and explained as under:
 
1. Typical Bullish Day
 
Figure 1
 
Price will go below the opening price at midnight [all times refer to New York local time] to lure retail traders into going short. This is the ‘accumulation phase’ where smart money traders (SMT) will buy the shorts placed by retail traders. Then, price will rally higher to take out ‘liquidity’, which is called the ‘manipulation phase’, during which SMT will either hold or sell a portion of their positions. Eventually, price will retrace and become range-bound in an area near the high of day and close near the high, known as the ‘distribution phase’, where SMT will sell the remaining positions to retail traders willing to go short.

2. Typical Bearish Day
 
Figure 2
 
Price will go above the opening price at midnight to lure retail traders into going long. This is the ‘accumulation phase’ where smart money traders will sell the buy orders placed by retail traders. Then, price will rally lower to take out ‘liquidity’, which is called the ‘manipulation phase’, during which SMT will either hold or square off a portion of their positions. Eventually, price will retrace and become range-bound in an area near the low of day and close near the low, known as the ‘distribution phase’, where SMT will square off the remaining positions to retail traders willing to go long.

3. Typical Bullish Week
 
Figure 3
 
Price will go below the opening price at Sunday’s opening to lure retail traders into going short. This is the ‘accumulation phase’ where smart money traders will buy the shorts placed by retail traders. Then, price will rally higher to take out ‘liquidity’, which is called the ‘manipulation phase’, during which SMT will either hold or sell a portion of their positions. Eventually, price will retrace and become range-bound in an area near the weekly high and close near the high, known as the ‘distribution phase’, where SMT will sell the remaining positions to retail traders willing to go short.

4. Typical Bearish Week
 
Figure 4
 
Price will go above the opening price at Sunday’s opening to lure retail traders into going long. This is the ‘accumulation phase’ where smart money traders will sell the buy orders placed by retail traders. Then, price will rally lower to take out ‘liquidity’, which is called the ‘manipulation phase’, during which SMT will either hold or square off a portion of their positions. Eventually, price will retrace and become range-bound in an area near the weekly low and close near the low, known as the ‘distribution phase’, where SMT will square off the remaining positions to retail traders willing to go long.

Another technical analysis concept from Michael J. Huddleston is ‘ICT Killzones’, which are the highest probability time-ranges for price to make big moves in the markets. This is an integral part of ‘ICT Power Of 3’ and both are to be used in conjunction to see the markets like the ICT. The researcher has dealt only with two of ‘ICT Killzones’ here, which are:
  1. ICT London Open Killzone – 02:00 to 05:00 New York local time
  2. ICT New York Open Killzone – 07:00 to 10:00 New York local time which is extendable to 11:00 due to release of important economic reports, news, Fed chairperson speeches, etc. scheduled at 10:00.
Some important things to bear in mind:
  1. The researcher has considered market state to be bullish if the amount of difference from open to low is less than open to high. Similarly, market state is bearish if the amount of difference from open to low is more than open to high. Days and weeks with neutral market state, i.e., where the amount of difference from open to low was equal to the amount of difference from open to high, were omitted. They were very few and the researcher believes that the omission did not affect the findings to a significant degree.
  2. Sunday was omitted in calculation of average daily movement and average hourly movement for each pair to prevent inconsistencies. For the same reason, it was not considered in finding out frequency of days when price made high/low of bearish/bullish week.
  3. All time ranges, etc. have been considered in the form of New York local time, adjusted for Daylight Savings Time (DST).
  4. Average Daily Movement – It is the average of the daily ranges (low to high) of that particular year.
  5. Average Weekly Movement – It is the average of the weekly ranges (low to high) of that particular year.
  6. Average Daily Movement during ‘Accumulation phase’ – It is the average range of the ‘accumulation phase’ (open to high/low) of ‘bearish’/’bullish’ days of that particular year.
  7. Average Weekly Movement during ‘Accumulation phase’ – It is the average range of the ‘accumulation phase’ (open to high/low) of ‘bearish’/’bullish’ weeks of that particular year.
  8. SMT – ICT terms smart money traders as ‘SMT’. These traders know how to keep themselves in line with the algorithm and profit from trading. On the other hand, retail traders, according to Michael J. Huddleston, are those who are not trading but ‘gambling’. These ‘traders’ do not have an understanding of the market which they can rely upon and not hop from strategy to strategy, indicator to indicator instead.
  9. ‘ICT Killzones’ has been shown only in Figure 1 to serve as an example. The explanation provided with Figure 4 does not comply completely with the figure, and it is because ICT’s concepts are not fixed rules. Also, the main idea has not been invalidated, as we can see in the figure that the low of the week formed after the week’s high was formed.
Quoted from:
technical analysis concept (ICT Power Of 3) in the foreign exchange market.
 
See also:

Sunday, August 13, 2023

The Central Pivot Range & Floor Trader Pivots | Trading Strategy

Floor Trader Pivots have been around for a long time and many traders have used these pivots to master the market for decades. Larry Williams re-popularized the formula by including it in his book, How I Made One Million Dollars Last Year Trading Commodities (1979). He described the "Pivot Price Formula" that he used to arrive at the next day's probable high or low. The concept of the Central Pivot Range was developed by Frank Ochoa (2010) based on Mark Fisher's Pivot Range (2002).  

Here is is one example of a trading strategy: Buy at the Central Pivot Range's support in an uptrend and sell at resistance in a downtrend. Filter all Floor Trader Pivots except S1, R2, and the central pivot point when the market is in an uptrend. In a downtrend, all pivots are filtered except R1, S2, and the central pivot point. If the market is trending higher, one should look to buy at support at either S1 or the central pivot range with the  target set to a new high at either R1 or R2.
 
Likewise, if the market is trending lower, look to sell at resistance at either R1 or the central pivot range with the target set to a new low at either S1 or S2. It takes a lot of conviction to break a trend and push prices in the other direction, which means to be able to identify the change in trend early enough, to profit from a very enthusiastic price move, which can last a day, or even weeks. Once a severe breach occurs through the first layer of the pivots, one typically sees a shift of the trend toward the opposite extreme. That is, a bullish trend becomes a bearish trend, and a bearish trend becomes a bullish trend. Two key buying or selling zones, S1 and the central pivot range in an uptrend, and R1 and the central pivot range in a downtrend.
 
CPR as a Magnet for Price - The central pivot range (CPR) can have an amazing magnetic effect on price that can lead to a high percentage fill of the morning gap. If price opens the day with a gap and the centrals are back near the prior day's close, you typically see a fill of the gap a high percentage of the time, given the right circumstances. The central pivot point is reached 63 percent of the time at some point during the day. When the market gaps at the open, the trade inherently has a 63 percent chance of being a winner. Gaps that are too large don't tend to fill as easily as those that are moderate in size. Pivot range placement should be at, or very near, the prior day's closing price. If the range is too close to price, however, it could hinder the market's ability to fill the gap. Don’t wait all day for a gap to fill, because the longer the trade takes, the more unlikely it is to fill. Gap fills in general, seem to work best during earnings season. If price gaps up to R1 resistance, or down to S1 support, these pivots can serve as a barrier to a breakaway trade, which leads to a higher percentage of filled gaps. A gap down requires much more confirmation, conviction, and volume in order to fill the gap on most occasions.
 
Breakaway Strategy - When the market has formed a narrow-range day (NR4, NR7) in the prior session, the pivots are likely to be tight, or narrow. Narrow pivots foster breakout and trending sessions. If the market opens the session with a gap that is beyond the prior day's price range and beyond the first layer of the indicator, the chances of reaching pivots beyond the second layer of the indicator increase dramatically. Price opened the day with a gap that occurred beyond the prior day's price range and above R1 resistance. When this occurs, one should study price behavior very closely in order to determine if the pivot that was surpassed via the gap will hold. If the pivot holds as support, you will look to enter the market long with your sights set on R3 as the target. The third and fourth layers are 30 percent more likely to be tested when price gaps beyond the first layer of the indicator. When trading the Breakaway Strategy using the Floor Trader Pivots, one should typically like to see the gap occur beyond the prior day's range and value, preferably just beyond the first layer of the indicator. In addition, the gap should occur no farther than the second layer of the pivots.  
 
CPR Width Forecasting  - Pivot Width is the distance between the top central pivot (TC) and the bottom central pivot (BC). Since the prior day's trading activity leads to the creation of today's pivots, it is extremely important to understand how the market behaved in the prior day in order to forecast what may occur in the upcoming session. More specifically, if the market experienced a wide range of movement in the prior session, the pivots for the following day will likely be wider than normal, which usually leads to a Typical Day, Trading Range Day, or Sideways Day scenario. Conversely, if the market experiences a very quiet trading day in the prior session, the pivots for the following day are likely to be unusually tight, or narrow, which typically leads to a Trend Day, Double-Distribution Trend Day, or Extended Typical Day scenario.  
 
 
Pivot width analysis works best when the range of movement is distinctly high or low, thereby creating unusually wide or narrow pivots If the pivot width is not distinctly wide or narrow, it becomes very difficult to predict potential trading behavior with any degree of certainty for the following session. An unusually narrow pivot range usually indicates the market is primed for an explosive breakout opportunity. A tight central pivot range can be dynamite. Be aware when a day has the potential to start off with a bang. A day that has a wide range of movement, like a Trend Day, will lead to the creation of an abnormally wide pivot range for the following session. In this instance, you typically see a quieter atmosphere in the market, as dictated by the wide-set pivot range. Sometimes, a wide-set pivot range leads to nice trading range behavior that allows you to pick off quick intraday swings in the market, much like the Trading Range Day. The key to trading a day when the centrals are wide is to identify the day's initial balance after the first hour of trading. If the initial balance has a wide enough width, you are likely to see trading range behavior within the high and low of the first sixty minutes of the day. If the initial balance coincides with key pivot levels, you have highly confirmed support and resistance levels that offer great opportunities for short-term bounces.

The market has a much better chance to reach pivots beyond the second layer of the Floor Pivots indicator if the central pivot range is unusually narrow due to a low-range trading day in the prior session. Conversely, a market is less likely to reach pivots beyond the second layer of the indicator if the central pivot range is unusually wide due to a wide-range trading day in the prior session.
  
CPR Trend Analysis - Buying the dips means buying the pull-backs within an uptrend, while selling the rips means selling (or shorting) the rallies within a downtrend. One of the best ways to buy and sell pull-backs in a trend is to play the bounces off the central pivot range, which is the method many professionals use. A strong trend can usually be gauged by how price remains above the bottom central pivot (BC) while in an uptrend, and below the top central pivot (TC) while in a downtrend. Once price violates this paradigm by closing beyond the range for the day, you see either a change in trend or a trading range market develop. Pull-back opportunities usually occur early in the session, with follow-through occurring the rest of the day. Any pull-back to the range early in the morning is a buying or selling opportunity depending on the direction of the trend. Once in the trade, the goal is to either ride the trade to a prior area of support or resistance, or to a new high or low within the trend.


Two-Day CPR Range Relationships - Understanding how the current central pivot range relates to a prior day's CPR will go a long way toward understanding current market behavior and future price movement. Where the market closes in relation to the pivot range gives you an initial directional bias for the following session. The next day's opening price will either confirm or reject this bias Higher Value relationship. Current day's pivot range is completely higher than the prior day's pivot range.
 
 
Two-Day Unchanged CPR Range = Sideways or Breakout Bias - The current pivot range is virtually unchanged from the prior day's range. Of the seven two-day relationships, this is the only one that can project two very different outcomes, posing a bit of a dichotomy. On the one hand, a two-day neutral pivot range indicates that the market is satisfied with the facilitation of trade within the current range. When this occurs, the market will trade quietly within the boundaries of the existing two or three day trading range. On the other hand, however, a two-day unchanged pivot range relationship can indicate the market is on the verge of a major breakout opportunity, similar to when the market has formed two, or more, points of control that are unchanged. The outcome is typically driven by the opening print of the current session. If the market opens the day near the prior session's closing price and well within the prior day's range, the market will likely lack the conviction necessary for a breakout attempt. If the opening print occurs beyond the prior day's price range, or very close to an extreme, the chances are good that a breakout opportunity may lie ahead.

Daily CPR Width and Range Relationships.

Outside CPR Range = Sideways Bias - This happens when the current day's pivot range completely engulfs the prior day's range. This two-day relationship typically implies sideways or trading range activity, as the market is happy with the current facilitation of trade in the current price range. A wide range will usually indicate trading range behavior This relationship is much more telling if the current day's pivot range is significantly wider than the prior day's range. Otherwise, merely engulfing the prior day's range without the necessary width may lead to the same result, but with less accuracy.

Inside CPR Range = Breakout Bias - It occurs when the current day's pivot range is completely inside the prior day's range. This two-day relationship typically implies a breakout opportunity for the current session, as the market is likely winding up ahead of a breakout attempt. If the market opens the day beyond the prior day's price range, there is a very good chance that initiative participants will enter the market with conviction in order to push price to new value. If the market opens the day within the prior day's price range, a breakout opportunity could still be had, but with much less conviction. This two-day relationship doesn't occur frequently. On the days when it develops, usually lead to major trending sessions. If the prior day's pivot range is noticeably wider than the inside day pivot range, you are more likely to see a breakout opportunity, especially if the current day's pivot range is very narrow. If both pivot ranges are virtually the same width, but technically meet the inside requirement, the rate of success will noticeably drop.

Daily CPR Width and Range Relationships and Floor Trader Pivot Levels.

Higher CPR Range = Bullish Bias - Current day's pivot range is completely higher than the prior day's pivot range. The most bullish relationship of the seven two-day combinations Initial directional bias will be bullish. However, how the market opens the day will either confirm or reject this initial bias. If the market opens the day anywhere above the bottom of the pivot range, you will look to buy a pull-back to the range ahead of a move to new highs. This is especially the case if price opens above the top of the range. As long as the market opens the following day above the bottom of the pivot range, but preferably above the top of the range, any pull-back to the range should be seen as a buying opportunity.

Lower CPR Range = Bearish Bias - It occurs when the current day's pivot range is completely lower than the prior session's range. This is the most bearish two-day relationship and typically leads to further weakness should the current day's opening price confirm the directional bias. If price opens the session below the central pivot range, you will look to sell any pull-back to the range ahead of a drop to new lows within the current trend. If price opens the following session below the top of the pivot range, but preferably below the bottom of the range, any pull-back to the range should be a selling opportunity. It must be reiterated, however, that just because a two-day relationship implies a certain behavior in price, this bias must be confirmed by the opening print. While a Lower Value relationship is the most bearish two-day relationship, perhaps the biggest rallies occur when the opening print rejects the original bias.

Overlapping Higher CPR Range = Moderately Bullish Bias - This offers a moderately bullish outlook for the upcoming session. The top of the range is higher than the top of yesterday's range, but the bottom of the range is lower than the top of yesterday's range. The same closing and opening price dynamics are in effect for this relationship as well.

Overlapping Lower CPR Range = Moderately Bearish Bias - The current day's bottom central pivot is lower than the bottom of the prior day's range, but the top of the current day's range is higher than the bottom of the prior day's range.It indicates a moderately bearish outlook for the forthcoming session. If price opens within or below the pivot range, price should continue to auction lower. Any pull-back to the range should be seen as a selling opportunity.
 
Weekly CPR Width and Range Relationships.
 
References:

Friday, December 16, 2022

The Four Guiding Principles of Market Behavior | Momentum & Trend

Principle 1:     Trend is More Likely to Continue its Direction than to Reverse
With price established in a clearly defined trend of higher highs and higher lows, certain key strategies and probabilities begin to take shape. Once a trend is established, it takes considerable force and capitalization to turn the tide. Fading a trend is generally a low-probability endeavor and the greatest profits can be made by entering reactions or retracements following a counter trend move and playing for either the most recent swing high or a certain target just beyond the most recent swing high. An absence of chart patterns or swings implies trend continuation until both a higher high and a higher low (vice versa for uptrend changes) form and price takes out the most recent higher high.

Be aware that recent statistical analysis of market action (from intraday to 20 day periods) over the last five years shows that mean reversion, rather than trend continuation is more probable in many equities/indices (as shown by more up days followed by down days than continuation upwards). For the current market environment, until volatility returns (as it may be doing now), this rule may be restated, “Trends with strong momentum show favorable odds for continuation.”
 
Principle 2:     Trends End in Climax (Euphoria/Capitulation)
Trends continue in push/pull fashion until some external force exerts convincing pressure on the system, be it in the form of sharply increased volume or volatility. This typically occurs when we experience extreme continuity of thought and euphoria of the mass public (that price will continue upwards forever). However, price action – because of extreme emotions – tends to carry further than most traders anticipate, and anticipating reversals still can be financially dangerous. In fact, some price action becomes so parabolic in the end stage that up to 70% of the gains come in the final 20% of the move. Markets also rarely change trends overnight; rather, a sideways trend or consolidation is more likely to occur before rolling over into a new downtrend.
 
Three Things Markets do:
1. Breakout and Trend.
2. Breakout and Reverse (False Breakout).
3. Trading Range (High and Low).
 
 
Principle 3:     Momentum Precedes Price
Momentum – force of buying/selling pressure – leads price in that new momentum highs have higher probability of resulting in a new price high following the next reaction against that momentum high. Stated differently, expect a new price high following a new momentum high reading on momentum indicators (including MACD, momentum, rate of change). A gap may also serve as a momentum indicator. Some of the highest probability trades occur after the first reaction following a new momentum high in a freshly confirmed trend. Also, be aware that momentum highs following a trend exhaustion point are invalidated by principle #2. Never establish a position in the direction of the original trend following a clear exhaustion point.
 
Principle 4:     Price Alternates Between Range Expansion and Range Contraction
Price tends to consolidate (trend sideways) much more frequently than it expands (breakouts). Consolidation indicates equilibrium points where buyers and sellers are satisfied (efficiency) and expansion indicates disequilibrium and imbalance (inefficiency) between buyers and sellers. It is much easier to predict volatility changes than price, as price-directional prediction (breakout) following a low-volatility environment is almost impossible. Though low volatility environments are difficult to predict, they provide some of the best risk/reward trades possible (when you play for a very large target when your initial stop is very small – think NR-7 Bars).

Various strategies can be developed that take advantages of these principles. In fact, almost all sensible trades base their origin in at least one of these market principles: breakout strategies, retracement strategies, trend trading, momentum trading, swing trading, etc. across all timeframes.
 
Concept Credit for arranging the four principles
 
See also:
 

Tuesday, September 27, 2022

The Bullish & the Bearish Market Maker Cycle

  


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 over a period of a week. However, market makers 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.
 
 
A typical pattern of behaviour particularly when examining the Three Day Cycle is to be able to identify a peak high followed by three moves down and a reversal which forms the peak low. Each time price moves down a level they can be referred to as achieving or making either a Level I, Level II or a Level III move. Level I and Level II have relatively similar patterns of behaviour (1-2-3 stop hunt). However Level III tends to be choppy with a wide range and represents an area of profit-taking for the institutions and signifies the beginning of an accumulation period for another cycle. 
 
The reasons for this behaviour can be understood if you consider what happens during the rundown:
  1. On day one the retail traders are selling and the institutions buying from the retail traders.
  2. On day two the retail traders are selling and again the institutions are buying.
  3. However, on day three the retail traders are again interested in selling and the institutions are buying up heavily.
  4. Now price moves up aggressively triggering stops and taking a profit. (In effect, the market makers are using a scaling-in method to book their profit).
  5. Following a Level III pullback price becomes choppy and continues because of what happens with the trader’s psychological adaptation to loss. After the market has run down for three days and traders have taken losses, these individuals react by pulling away from the market quite literally and having a few days off before coming back to trade. During this period the market is choppy and relatively stagnant until the traders have returned to play in the game again.
To remember the patterns the following phrases are useful:
  1. "After a big drop the market must chop"
  2. "After three days of drop the market must chop"
  3. "After a big rise the market needs more guys"
  4. "After three days of rise the market needs more guys"
These patterns are similar in different time frames. The areas of reversal are often synchronized so that they occur at the same time in different time frames. Using this knowledge it is possible to convert a spot trade into a swing trade when you enter it from a peak formation high to a peak formation low

Count the levels to know what part of the cycle price is currently in. Entering trades at peak reversals is best. One should only take a long position when the Low of the Day (LOD) or High of the Day (HOD) is clear. This is the only place that has a high level of certainty in directional movement. Look for a midweek reversal which will generally correlate with one or both of the intraday reversals. With an awareness of the longer cycle and assuming one is in the correct place within the cycle, it is possible to convert a spot trade to a swing trade from one of the 3 day cycle peaks to the other given an appropriate entry. This would involve going from one peak formation high to the next peak low and may take several days.

On an intraday trade, it is still important to understand the current position within this larger cycle. This will help to make a judgement about how far a run may last. For example, if price has just passed the peak high and is at a Level I accumulation then an intraday long trade after a bearish stop hunt, while valid, will not be likely to produce consistent results. Hence, it is a good idea to not take trades against the longer trend at a Level I accumulation.
 

The Accumulation Phase: This phase commences with the resetting of a daily high/low. It occurs at 5pm ET which is the beginning of the “Dharma” period. The Dharma period occurs after the US markets have closed and before the London markets have opened. During this period there tends to be little activity and the market just cycles back and forth between two price points. This occurs because Bank A will buy a quantity of currency from Bank B [1]. This causes price to rise. This is followed by bank B selling the same currency to Bank C [2] and this causes price to fall. This process goes around in circles and so the price simply oscillates back and forth. After a while, the range begins to widen [3]. This has the effect of triggering pending orders placed by breakout traders. So positions become committed and gradually accumulate as more and more traders begin to ‘take the bait’. However, when they are triggered, price is quickly pulled away and they will often be stopped out on the other side of the range which is also widening. 

 
The Stop Hunt - also defining the HOD and LOD: Sometimes between 1 – 4am ET, the market makers make a stop hunt. The stop hunt involves a deliberate movement outside of the range to what will become the high or low of the day. The move usually occurs in three pushes which can be as simple as three candles though you will sometimes see a small pause in the form of a pullback in the middle of this. The stop hunt has two main objectives:
  1. Take out existing stops, that is: collecting buy side and sell side liquidity.
  2. Encourage traders to commit to positions in a direction that is opposite to where the real trend is going to be.
This represents the high/low of the day (HOD/LOD). Once the HOD/LOD has been hit:
  1. The spread is opened up by a few pips. This allows traders orders to be triggered outside their normal boundaries and they will be holding negative positions from the outset.
  2. It is common to see price undergo a further period of accumulation lasting 30 to 90 minutes which encourages traders to take further positions. When there are enough positions, the price is moved in the direction of the true trend and their stops will be triggered.
  3. There is often a second move to the HOD/LOD though most of the time it will fail to take it out (so as to not give those who got in a profitable position to escape from). This forms the typical W or M pattern.
This is the preferred point of entry for most of these trades, particularly the second leg of the M or W. It is relatively slow moving and so there should be no reason to rush or impulsively take a trade. 
 
 
Other behaviors at the HOD and LOD Reversal: Market makers induce traders to take the wrong direction by using sharp and aggressive moves near the high or low of the day. One of the ways of identifying that you are in the right place is that the market will seem to be quiet, in consolidation and make a sharp move out of the range, faking "the breakout".

If a trade is taken in the area of the HOD/LOD one might notice that price is moving around but the position changes little. Looking at the price board one will see that it is "flickering red and blue" with lots of changes suggesting that there is lots of activity but in fact there is little and a reversal is imminent. Another observation during this period is that the spread widens. This is done so that a broader range of orders can be collected and accumulated during this period, making it even more difficult for traders to take profit as they are in a losing position right from the outset. The diagram below demonstrates what happens to the spread during this period.
 

But these patterns do fail sometimes. This occurs when there has not been enough volume to make it worth their while to take a reversal. In these situations that price is moved to the next level to further induce positions to be taken in the wrong direction, against what is to become true trend. This is called the extended stop hunt.
 
Extended Stop Hunt: When price is pushed outside of the Asian range and comes to rest 25 to 50 pips beyond the range, the market makers' motivation is to generate a stop hunt. However, if as a result of this move the accumulation of positions is inadequate for their purposes, then the stop hunt will be extended. This means that price will be pushed beyond this Level in the direction of the technical trend in an effort to induce more traders to enter positions and build up the positions required.

Like before, this move will be in the 25 – 50 pip range and be comprised of 3 candles or 3 pushes. But also like before this is not necessarily the case and more or less are also possible. Again the trader must use their own judgement and discretion. Therefore, identifying that after a period of time the stop hunt has not led to a reversal one should scratch the trade. An appropriate period of time is 2 hours following the second leg of an M or W pattern. It the trader has not moved in the expected direction by this time, something is wrong and they have not been able to build up enough volume to make it worthwhile to reverse the market.

 
The True Trend: The stop hunt is followed by a reversal and a slower trend that continues against the ‘faked’ trend toward the opposite high/low for the day. This trend tends to move in three waves, the pause between each wave representing a new opportunity to fake out traders by reversing direction and then moving against them again. These pauses are often characterized by sideways movement rather than a significant retracement though both are possible.
 
 
The Opposite LOD / HOD and Reversal: Ultimately the opposite LOD/HOD will be reached and there will be another reversal. This often occurs in the NY session, called the NYC Reversal Trade. This trade is likely to return a smaller profit than the initial stop hunt reversal trade though it is still worth taking particularly if you are not able to enter a trade following the London open.
 
 
Return to Accumulation: Once the reversal has occurred, price tends back toward the center, often not far from the starting point and recommences a new period of accumulation to lead into the new Dharma period and tomorrow’s cycle.
 

Quoted from:
Anonymous - The Market Maker Method
 
See also: