Never Make the First Move

Unless you're trying to impress someone, never make the first move in trading.

What this means is that you shouldn’t rush in when you see the market moving quickly. Dealers know that around 80% of the time, markets are ranging, which means sudden, sharp moves are likely to be faded. This creates an opportunity for dealers to profit.

Why Do Sharp Moves Get Faded?Dealers, working for banks, have two key advantages:

They can see the orders retail traders are placing.They have substantial capital to move the market.

A Real-World Example: EUR/USD After Economic DataLet’s look at a 5-minute chart of EUR/USD after the release of the German ZEW economic sentiment index, a high-impact report. Retail traders see the price drop and think it will continue falling, deciding to jump in.

But dealers are focused on the opposite. They know that the initial move after a news event is often a fakeout, and the price typically reverses to pre-release levels. With their financial backing, dealers take the opposite position, fading the move.

How Dealers Use Their AdvantageIn the chart, the down move isn’t sustained. Dealers push the price up, likely targeting retail traders’ stop losses. As the price rises, retail traders think it will continue higher and buy in. Now, dealers can close their long positions, profiting from the spread.

The Market Makers’ AdvantageDealers, banks, and institutions are the true market movers. They make the market move. Once retail traders enter long positions and set stop losses, dealers can push the price to hit those stops, profiting again from the spread.

In the end, the price reverses and dips back under resistance, trapping retail traders who bought into the breakout.

The TakeawayDealers use their advantages to move the market in their favor. That’s why you should avoid jumping in on the first move—it’s often a fakeout.

Never Make the First Move

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