Brief Summary
This video explains how to identify and use the Forex Master Pattern, also known as the three market phases (contraction, expansion, and trend), to understand market movements from an institutional perspective. It emphasizes the importance of accurately defining contraction zones by looking for simultaneous lower highs and higher lows, followed by expansion phases. The video also demonstrates how to apply this pattern in real-time trading scenarios using live chart analysis, focusing on identifying key levels and potential trading opportunities.
- The Forex Master Pattern consists of contraction, expansion, and trend phases.
- Contraction zones are key balance points where market makers assess supply and demand.
- Identifying contraction zones involves looking for simultaneous lower highs and higher lows.
- Expansion phases confirm the validity of contraction zones and provide key levels for trading.
- Applying the pattern in real-time involves analyzing higher and lower time frames to identify potential trading opportunities and manage risk.
Introduction to the Forex Master Pattern
The Forex Master Pattern is a consistent technical analysis tool applicable across all time frames and financial markets, including forex, stocks, commodities, and cryptocurrencies. This pattern helps traders understand the market from an institutional perspective by identifying the footprint left by bank activities. It consists of three phases: contraction (a tightening of price), expansion (a widening of price), and trend (a move to higher or lower prices).
Understanding the Three Market Phases
The Forex Master Pattern, also known as the three market phases, includes contraction, expansion, and trend. The contraction phase involves a tightening of price, while the expansion phase is the opposite, showing a widening of price. The trend phase is the move to higher or lower prices. This pattern, originating from early 1900s traders like Jesse Livermore and Richard Wyckoff, helps traders follow how banks control the markets.
Identifying the Contraction Phase
The contraction phase is identified by simultaneous lower highs and higher lows, indicating a tightening of price. This phase provides the market maker balance point, which is where they balance their book of business. The expansion phase follows, showing a widening of price, and then the trend phase, where the market moves to higher or lower prices.
Defining Contraction Zones
Contraction zones are defined balance points where market makers conduct equalizing two-way business between buyers and sellers. These zones act as reset points for market makers and large institutions, allowing them to evaluate supply and demand and create portfolio management plans. Accurately defining these zones helps map out the market's framework and understand the story behind the scenes.
Characteristics of Contraction Zones
The main characteristic of a contraction zone is the simultaneous occurrence of lower highs and higher lows, leading to a tightening of price. This is a leading indicator. The lagging component that confirms the validity of the zone is the expansion phase, with expansion legs pointing back to the contraction zone. Even if expansion legs occur, the original contraction zone remains a key reference point.
Global Master Pattern View
The global master pattern view involves identifying swing highs and swing lows that point back to a central point of origin. This pattern helps traders scan charts for contraction zones, using the contraction of price as a leading indicator and the first expansion leg as a lagging indicator. Tracking these zones creates a map-like structure, revealing major and minor key levels used by market makers.
Finding the Forex Master Pattern in Real Time
To find the Forex Master Pattern in real time, traders should focus on drawing boxes at the correct places relevant to the current price action. It's important to identify the most recent spot where price tightened up, indicating a contraction period. The expansion legs coming out of this contraction point back to it as a central point, confirming it as a market maker balance point.
Live Chart Analysis: Dollar CAD
On the daily chart for Dollar CAD, the most recent contraction period is identified where price tightened up, followed by expansion legs. This point is marked as a market maker balance point. On the 15-minute chart, a recent sensitive point is identified with price tightening and then expanding past the low and high. This level is used to define buying and selling points, with the rotation off that level being the optimal trading opportunity.
Using MetaTrader 4 to Identify Contraction Zones
To identify contraction zones using MetaTrader 4, insert a rectangle shape on the chart to mark the area where price is constricting. Look for simultaneous lower highs and higher lows. After the contraction, the expansion legs confirm the zone's validity. Place a line in the middle of the box to mark the sensitive price level.
Analyzing Dollar CAD on Daily and 15-Minute Timeframes
On the daily chart for Dollar CAD, a contraction zone is identified, and a line is placed in the middle to mark the sensitive price level. Yellow candles forming below this level indicate a short trade opportunity. On the 15-minute timeframe, a contraction point is identified, and a rectangle is placed around it. The line in the middle indicates the sensitive price level, which can be used to define buying and selling.
Additional Contraction Points and Trading Scenarios for Dollar CAD
Another contraction point is identified on the 15-minute chart for Dollar CAD, and a rectangle is placed around it. This creates a dealing range between two sensitive price levels. If the daily trend is short, traders can look for price to hold below the upper level. The potential target is the previous low, and traders should monitor progress to ensure the trade is valid.
Scanning for Opportunities: Euro Pound Analysis
When scanning for opportunities, it's important to start with the higher timeframe (daily chart) to identify potential trades. For Euro Pound, a contraction zone is identified on the daily chart, with a clear respect for that level. The ideal trade placement was at the sweet spot where the level was respected. On the 15-minute chart, a contraction point is identified, and a rectangle is placed around it.
Trading Plan for Euro Pound
A reasonable trading plan for Euro Pound involves waiting for a significant momentum push up through the identified level on the 15-minute chart. If price holds above this level, it's a safe place to buy, protecting risk below the line. The initial progress target is the top of the expand high. If price respects the level and starts heading short, it could indicate a potential yellow candle on the daily chart.
Controlling Opportunities and Defining Accurate Contraction Points
As a trader, you can control the opportunities you interact with by choosing only the finest opportunities that make sense to you. Ensure the story is clear and that you've defined accurate contraction points to build your map from. When you feel you have a good sense of what's going to happen and it's not too late to the trade, it's time to get aggressive.
