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0:00 Have you ever taken a trade and then the market immediately moves against you? You probably thought you were just really unfortunate, but what if I told you that what just happened to you was actually one of the most predictable behaviors in the entire market? In fact, there's a specific phase in price action where traders consistently get trapped. It's the phase where the market looks the most boring. Prices going sideways, nothing seems to be happening, and traders start forcing trades because they think the market is about to move. The quiet sideways moment is actually where some of the most important activity in the entire market is taking place. Behind the scenes, during that exact moment, the largest participants in the market are being forced to make a decision to either manipulate the masses into trading the wrong side of the market, or leave them
0:48 alone and let them profit. If you learn how to understand this phase of the market, it can be the difference between you making it or not in this business. My name is Wade Guth. I'm the owner of a trading software company called trade ATS. I've been trading for over 14 years and I've coached and worked with literally thousands of traders throughout my career. It's safe to say I know a little bit about the markets and how they work. Today, I'm going to show you why every major move in the market begins with something called contraction. And I'm also going to show you why the market frequently moves against traders before continuing in the expected direction. And later in this lesson, I'm going to show you one of the clearest signs that the market is being manipulated right before a major move begins. This knowledge has the power to instantly make you a better trader, so stay with me till the end. Also, this video is lesson six of a 12-part masterclass, so make sure to
1:39 subscribe so you get notified when we drop the next lesson in the series. Now it's time to learn about level two, intermediate understanding of the master pattern, contraction, the beginning of everything. Let's start with something fundamental that every trader needs to understand. Markets move in phases. Every single move in the market can be broken down into three distinct phases. First, we have contraction. Then we have expansion. And finally, we get the phase everyone is chasing, the trend. The trend phase is where the profits are made, and it's the phase everyone wants to catch. But here's the mistake most traders make. They spend almost all of their time trying to analyze the trend itself, looking for indicators, patterns, or
2:28 signals that tell them where the market is going. But the trend itself is not where the real story begins. The trend is actually the result of something that happened earlier. Every trend begins with contraction. And if you want to predict where the trend is likely to go, you need to understand what happens during the contraction phase first. Because contraction is where positioning happens, and positioning is what ultimately determines direction. So what exactly is contraction? At its simplest level, contraction represents balance in the market. It's the moment when buying pressure and selling pressure temporarily become equal. Price stops trending and instead begins moving sideways. You'll often see see tight ranges form, candles overlapping each other, and price action that becomes compressed and contained. To most
3:17 traders, this just looks like a pause in the market. They assume the market is simply resting before the next move. But something much more important is actually happening. During contraction, the market is establishing what we call fair market value. This is the point where all available information in the market, fundamentals, technical signals, trader sentiment, and positioning temporarily settle into agreement. At least that's what it appears to be on the surface. But here's where things start getting interesting, because what looks like balance in the market is not always truly balanced beneath the surface. The reason for that has to do with the role of the market makers. Most traders think the market makers simply match buyers and sellers who disagree on price. But there's another layer operating behind the
4:03 scenes. Market makers exist to ensure liquidity in the market. If someone wants to buy, there needs to be someone willing to sell. And if someone wants to sell, there needs to be someone willing to buy. But what happens when there isn't another trader available on the opposite side of that transaction? That's where the market maker steps in and takes the other side of the trade themselves. What this means is that market makers are constantly accumulating positions, some of those positions they wanna hold, and others they do not. You could think of this as two different portfolios. The first is what we call the positive selection portfolio. These are positions that the market maker actually wants to hold because they align with where price is likely to move. The second is the negative selection portfolio. These are positions that the market maker ended up with
4:50 simply because they had to provide liquidity to traders. Because market makers operate as businesses, they cannot simply hold positions that expose them to unnecessary risk. They must constantly rebalance their inventory. And one of the most important places where that rebalancing happens is during the contraction and expansion phases. But this creates an interesting situation. Sometimes the market maker is already positioned correctly for the next move, and sometimes they're not. And this difference determines whether the market moves cleanly or whether something else happens first. So I have two different examples that I wanna take you through that helps break this down a little bit clearer. So in this example, we're talking about non-manipulated supply. you ever seen the market really go down into a contraction or into a
5:36 tight consolidation range and then just cleanly break out well that is because the market maker is already well positioned there isn't any need for manipulation they don't need to rebalance for whatever reason they're sitting pretty already so in that case we go into contraction and then the market expands straight into the trend phase goes up and then starts three market phases over goes back into contraction again The only way this is going to happen is if the market maker is already sitting good, they're already well positioned, and they can just let the market organically take off and start selling into that uprise and taking profit. They're already doing good. Now in our second example, we'll talk about manipulated supply. Right here we have the same situation where the market went
6:22 up, it went into the contraction phase, but instead of getting that clean break where it just goes on up to higher prices, we get this whipsaw action. This is the manipulation that needs to happen in order to provide the market maker with the rebalancing they need in order to get ready for the trend. So this is only necessary, this manipulation here, if the market maker was not balanced correctly during this phase. They have to do this, otherwise they will lose money when this happens. Now, the magical thing to understand about this is that more times than not, some level of manipulation is necessary to rebalance the market maker's portfolio. And if you know what to look for, this type of activity can provide you with some amazing
7:08 entries into the prevailing trend. One of the big questions that I constantly get asked about is how do you accurately identify the contraction phase? So I'm going to take a few moments and show you exactly how to do that. Rule number one is you want to find a trending move that has just happened either up or down, because once you have that displacement, you can expect that the three market phases are ready to start again. So in this case, we have a move that's gone up and then it's now gone into a pullback. What you want to look for is that first leg that comes down and retraces, you want to look for another low point right before that, that it does not pass. And then alternatively, you want to look for another high point that it does not pass. This behavior shows that the
7:53 market is now contracting and getting trapped between a predetermined high and low point. So that right there would be the way that you would identify contraction. And on the chart below, I've marked up a few places where we have examples of manipulated supply coming out of contraction and non-manipulated supply. This one, you can see that the market moved up right here. It pulled back, went into the same pattern up here, tried to break out through the high, tried to break out through the low, showing price was trapped. We wanna throw a box around that. In this case, we had that manipulation come out of that box, the market makers rebalancing through that area, and then that eventually leads to the next big move up. In this case, we have the next drop back here. We have another box that goes through the same contraction pattern. We throw a box around that. In this case, Traders are already trying to
8:43 sell it. They think gold is priced too high. In that case, the market maker just lets it break out, lets all those traders stops hit, and that's easy. Next thing right here, it drops back. We get another contraction, and then we can see that that one's underway right now. And if you don't wanna mess with this, you don't wanna worry about drawing any of this stuff, then we could simply delete that. and I can pull up ATS charts because that's what we do at Trade ATS is we make advanced chart mapping software that does exactly what I've been talking about. You can see we have our manipulated supply coming out of this contraction zone. We get our fair market value right here. Price settles above, goes into that uptrend. We got another non-manipulated supply here. We'll call these warning boxes a lot of times, but you can see that this software does all the work for you so that you
9:30 can just focus on price action. and just trade. What makes this concept so powerful is that it changes the question you ask when looking at a chart. Most traders ask, which direction is the market going? But that's actually the wrong question. The better question is, how is the market maker likely positioned right now? If you start looking at every contraction as the starting point for the market maker's rebalancing efforts, your trade timing becomes sequential instead of random. You start to realize that the trend phase that everybody wants to participate in is a default move that can clearly be predicted based on the manipulation tactics of the market maker. Once you start thinking this way, the market stops looking random. It starts looking like a series of liquidity events. Contraction is a phase where those liquidity events are being prepared. But there is another important detail
10:18 that traders often overlook. Even when manipulation happens, the larger market structure usually hasn't changed. The higher timeframe direction is often still intact, which means the purpose of the manipulation isn't to reverse the market. It's It's simply to rebalance positions before the real move begins. This is why understanding the relationship between contraction and expansion and trend is so important. When you recognize that you're inside the contraction phase, you stop trying to predict every small movement. Instead, you start focusing on the bigger picture and watching for the moment when the market finishes rebalancing and begins the trend phase. This is also why some of the most explosive moves in the market happen right after what looks like a fake breakout. Because once liquidity has been collected, something important changes.
11:07 The market maker no longer has a positioning problem. Their inventory is aligned with the direction of the move. Think of it like stretching a rubber band. During contraction, pressure builds, liquidity gathers, and positions accumulate. And once the imbalance is resolved, the market releases that pressure very quickly. That's why some breakouts look slow and gradual, while others explode almost instantly. The explosive moves are often the ones that happen after the liquidity event. And if you learn to recognize those moments, you can start positioning yourself alongside the move rather than reacting to it after it's already started like most other traders do. So here's something really big that's definitely worth talking about, and that is how market makers deal in and around news events. If you've been trading long enough, you know that it's no secret that traders can get demolished when it comes to trading in
11:57 and around news events. And right now I'm going to tell you exactly why that usually happens. In this situation we have the market coming down in this contraction area this is leading up to the news we're gonna assume that the masses are all getting prepared and they're all wanting to sell the market everyone thinks that the news coming out means the market is going to go down so they're getting prepared for that if that is the case what happens to the market maker if everybody wants to short the market maker is in charge of making a market they don't have enough traders to match everyone up with so that is going to cause the market maker to get net long now the market maker also thinks that ultimately the market is going to go down so they have to get out of all of these
12:43 long positions they've been accumulating in through here so what ends up happening is that when we get into that liquidity event and that news comes out you'll see something like this it'll start coming down and all of a sudden the news hits and boom it goes the opposite other way everybody's like what's going on they all get stopped out plus when this happens it triggers new buying activity because then everyone thinks like, well, if it's not going short, it must be going long. So they all jump in and that's exactly what the market maker needs. The market maker needs a bunch of buying activity to get out of their long positions because then they can trade, get net short in preparation for the real move that Everyone was pretty much right in predicting. They just didn't predict that this had to happen first. So that
13:32 allows the market maker to rebalance her portfolio. The market goes off in the predicted direction. And then we get something like this, which is always funny. It goes back into contraction, starts tightening up. Everybody that lost everything on this now thinks, well, now I'm going to call the turn. This thing's already ran. I'm going to catch the bounce. that's going to be the retracement on the trend. So they start buying right there, but everything's pointed down. It's, it's obviously going to go down, but they think they're very clever. So they start getting long right here. And then the market maker knows it's still going down. This is easy. All they got to do is just let the market break out. because they're already well positioned. If everyone wants to go long, the market maker is getting that short. They just let it break
14:17 out. It starts triggering all those trader stops and it's just easy. That's easy profit, no rebalancing needed. So in this situation, you see both cases and you can see the dynamics that are happening behind this one coming up to the news and this one that is just part of the trend. That's your two different scenarios of manipulated supply and non-manipulated supply. So remember the question we started with? Why does the market so often move against traders before moving in the direction they expected? Now you know. It's not random and it's not simple misfortune. It's a critical phase in the market maker's business model. When you start focusing on what happens during and right after contraction instead of chasing trends after they begin, you start seeing the market through a completely different lens. Once you understand how supply is managed and how liquidity is collected, you're
15:06 no longer guessing where price might go. You're thinking the same way the largest participants in the market think. And when you can do that, you put yourself in a whole other league. So that does it for lesson six of this 12-part masterclass. Hey, if you like what you're learning, make sure to subscribe. I want to make sure you get notified when we drop the next lesson. And if you're interested in exploring how we help traders automate their analysis, check out our software company TradeATS. The link is in the description. Until next time, we'll see you later.
