Great activity and breadth induces trading in large quantities by big operators on the floor and outside. Such a market enables the manipulator to unload a large line of stock. When he wishes to accumulate a line, he raids the market for that stock, makes it look very weak, and gives it the appearance of heavy liquidation by sending in selling orders through a great number of brokers.
You say all this is unethical, if not unscrupulous. You say it is a cruel and crooked game. Very well. Electricity can be very cruel, but you can take advantage of it; you can make it work for your benefit. Just so with the stock market and the Composite Man. Play the game as he plays it. « — Richard D. Wyckoff, 1931
While these banks also engage in speculative trading, the majority of their activity is classified as "market making." This entails buying and selling on behalf of their clients, which primarily include hedge funds, pension funds, commercial banks, corporations, other financial institutions, and central banks. In fact, central banks are among their most valued clients. The sheer volume of their orders means that transactions cannot be executed in single lots in any market, necessitating the roles of market makers and liquidity providers. Big banks earn commissions from these activities, often risking their clients' capital for market manipulation and additional profits.
This information is crucial for small retail traders as it reveals an important insight: if the major banks primarily act as market makers and liquidity providers, they inherently drive the market toward areas of liquidity. Market movements are not random; they are influenced by intention, logic, strategy, and measurable factors. Price levels can be predicted. Michael J. Huddleston, the Inner Circle Trader (ICT) and author of many smart money trading concepts, emphasizes this understanding:
» There
is always a puppeteer. There is always someone pulling the strings.
It's never being left to randomness of buying and selling. There is no support and resistance in the marketplace. These are
all notions that promote the idea of free trade. When it comes to the truth of the markets: It's
complete and utter control and manipulation. It's a very simple approach. It's about price: It's the open, the high, the low, and the
close of the daily, weekly, monthly and quarterly bars. It's not support nor
resistance what is moving the price order flow. It's all about where the
money is. The retail textbooks will never teach you this: Price moves to where the
money is. And the money is at the levels where most retail traders have
their entry and stop loss orders - just to get harvested by the smart money during false moves and false breakouts. «
The good news is that market makers consistently leave footprints within their accumulation-manipulation-expansion-distribution framework. These include order blocks, imbalances, fair value gaps, liquidity voids, liquidity pools, stop runs, and equilibrium. (HERE - HERE - HERE)
Big banks rely less on indicators and employ more software engineers and programmers than technical analysts, and for good reason: market making and order processing are fully automated by algorithms designed to maximize returns. They utilize daily, weekly, monthly, quarterly, and yearly charts, largely ignoring popular retail indicators, forecasting methods, and trading systems. Their market-making strategy focuses exclusively on breaking down large orders into smaller increments, executing these transactions continuously and efficiently, and profitably misleading retail traders.
Smart money drives the markets in daily and weekly cycles, with accumulation, manipulation, expansion, and distribution as their core business model. The typical weekly market maker cycle is as follows:
(1.) The week starts with a trap move on Sunday night or early Monday morning.
(2.) Then follows an 'accumulation phase' and the setting up of an initial high and an initial low in the Asian session, during which price is usually held in a narrow range.
(3.) The accumulation phase is followed by what Wyckoff coined the 'spring', an engineered false breakout against the real intention of the market maker to 'support or resistance levels' to harvest the retail traders' entry and stop loss orders there. The market maker considers these levels as 'liquidity pools'.
(4.) Next the market maker initiates the actual planned market move. This results in the formation of a trend that can be slow and steady, or it could be swift and furious. In the cash market a trend can be just a few hours, in the futures market up to 8 or 10 hours. On the chart the trend will be seen as a series of drives or pushes in the market maker's intended direction.
(5.) Towards the end of the day or the end of the session, there will be a corrective distribution phase and pattern of some type (wedge, pennant, head and shoulders, M or W formation), when price pulls back from the high or the low of the day because the market maker liquidates positions (see also HERE).
There is a high probability that the weekly low or high will form before the opening of the New York session on Wednesday. The odds increase further between Tuesday and Wednesday, particularly during Tuesday's London session leading into Wednesday's New York session. Even market makers do not possess infinite capital, so they must orchestrate retracements to secure profits before continuing their strategies. This is why sudden, aggressive pullbacks can seem to occur out of nowhere.
To gain a more detailed understanding of how smart money manipulation operates on a day-to-day basis, Michael J. Huddleston has developed six ICT Intraday Trading Templates. These templates offer insights into when to expect market movements, clues related to daily and weekly biases and ranges, and a perspective on the internal structure of daily and weekly market maker cycles:
(1.) The Classic Buy or Sell Day Template: This is the best template to make money since it is a wide range trending day that unfolds mostly on Monday, Tuesday and latest on Wednesday during the London session. The New York session will eventually give a retracement to continue with the trend that was set during the London session. The daily range will last for 7 to 8 hours once the profile is established.
Mostly it will give a rally or drop from the daily opening price to the low or high of the day during the London session. The trend usually lasts into 11:00 EST.
Price will initially drop below the opening price, then run above the opening price and go back to the range into consolidation. It first appears to unfold as the Classic Buy or Sell Template. But if it continues consolidating, do not look for continuation into the New York session. Take profits.
(3.) The London Swing to New York Open / London Close Reversal Template: The bullish version of this template always begins like a Classic Buy or Sell template with a decline below the opening price before price starts rallying. Once price drops, a buy entry forms, price rallies to a higher time frame Point of Interest (POI), e.g. a bearish order block (OB), into a Fair Value Gap (FVG), etc. If this happens during the New York session, it indicates a classic market reversal.
The template is used to either reach for a bearish order block on a higher time frame, for a turtle soup raid or to close a range. On a bullish day it will first create an initial low of the day during the London session, run up and create the high of the day during the New York session around the London Close, then run back down and clear the initial low that was created during the London session. Ideally it can pan out after the market is in exhaustion based on the higher time frame's dominant trend.
(4.) The Range to New York Open / London Close Rally Template: Generally this template is to be expected on days with high or medium impact news events like interest rate announcements, etc.
Ahead of these events price will remain in consolidation during the Asian and London sessions. Lows will be cleared initially and after the news price explodes into a directional move.
(5.) The Consolidation Raid on News Release Template: Unfolding during the New York session on days with high impact news, mostly FOMC press releases. During and shortly after the news old highs and lows of prior consolidation levels will be taken out. Ideally buy when a low is taken out and sell when a prior high was breached.
