Understanding Market Maker Models in Trading

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The Market Maker Model

Model Breakdown: Sell-Side Perspective

Let’s start by looking at the Sell-Side perspective of the Market Maker Model. Imagine the market as a chessboard, and each move holds significant meaning. Here’s how it unfolds:

1. Original Consolidation:

Think of this as the calm before the storm. Orders are piling up above and below the consolidation zone as traders brace themselves for potential breakouts. During this phase, it’s crucial to remain patient and observant.

2. Accumulation:

This is where the game gets interesting. As the market moves out of consolidation, we enter the expansion leg. This is when the Market Makers accumulate buy orders in anticipation of price movements upwards.

3. Smart Money Reversal:

Market structure-wise, this phase resembles a Long-Term High (LTH). A premium Price-Driven Analysis (PDA) combines with time, and we see a Change in Supply-Demand (CSD) event, indicating bearish order flow.

4. Distribution Legs:

Once the sell program kicks in, we have opportunities in the distribution legs. The first and second distributions are the prime entry points, often clearing the original consolidation zone.

Remember, everything to the left in this model is Buy-Side oriented, while the right is Sell-Side.

Model Breakdown: Buy-Side Perspective

Now, let’s flip the chessboard and explore the Buy-Side perspective:

1. Original Consolidation:

Just like on the Sell-Side, we start with consolidation as orders build up in anticipation of potential breakouts. During this phase, maintaining patience is key.

2. Accumulation:

Here, we move out of consolidation into the expansion leg, but this time, we accumulate sell orders with the expectation of price movements downward.

3. Smart Money Reversal:

Structurally, this phase appears as a Long-Term Low (LTL). We enter a discounted PDA paired with time, and a CSD event occurs, indicating bullish order flow.

4. Distribution Legs:

Once the buy program is initiated, we have entry opportunities in the distribution legs. Again, the first and second distributions are your go-to points, typically clearing the original consolidation zone.

Here, everything to the left is Sell-Side oriented, while the right is Buy-Side.

Templates and Examples

Old accumulation = New distribution

Using old areas of accumulation from the sell side of the curve to the buy side of the curve can increase the probability of the buy side of the curve’s PDA.

At these areas we can look to pair the PDA’s with mitigation blocks. Let’s look at template then examples:

Chart Examples

Here’s where it gets exciting. We’re going to cover a Market Maker Buy Model chart example with execution annotations. Take a look at both the High-Time Frame (HTF) and Low-Time Frame (LTF) images for a comprehensive understanding.

HTF Chart

LTF Chart

As you progress as a trader and deepen your understanding, you’ll be able to adapt and create your own variations of this model using these fundamental concepts.

It’s essential to note that not every Market Maker Model execution will be crystal clear. However, the process and mechanics behind the model remain transparent and applicable. The more effort and time you invest, the clearer it will become.

And there you have it, a comprehensive guide to the Market Maker Model. Remember, in trading, knowledge is power, and the more you understand the mechanics behind these models, the better your chances of success. So, keep learning, keep exploring, and keep trading smart. 

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(This blog has been created based on the provided persona and scenario, and the information presented is for educational purposes only. Always conduct thorough research and seek professional advice before making any trading decisions.)

P.S. – Thanks to our partner Day Trading Rauf for sharing valuable resources.

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