Forex Market Manipulation: Absorption & Market Control Tactics

Market manipulation is a concept that may sound alarming, but it is a common practice in the forex market, especially among large institutional traders. These traders use passive limit orders to fulfill big positions without causing significant market disruption. Their goal is to remain as discreet as possible while still executing large trades. This approach allows them to “hunt” the aggressive, direct market orders. These are the ones recorded in overall volume data, thereby masking their true intentions. However, with the right tools, such as the Volume Terminal, these manipulations become easier to spot.

Forex Market Manipulation: Absorption and Market Control Tactics

Let’s learn:

Absorption: A Key Manipulation Strategy

One of the most common forms of market manipulation is “absorption,” where a large market participant absorbs all the buying or selling pressure at a specific price level. For example, on August 5, 2022, during EUR/USD trading, a passive seller absorbed the buying pressure throughout the day. After an attempted test above a key price level (DFP), where no more buyers were found, the passive seller became aggressive, leading to a sharp market collapse.

Similarly, on August 10, 2022, weak buyers who had been in control earlier were caught in a stop-hunt. As indicated by cy75, which signaled a shift towards stronger buying momentum, the market initially seemed to favor the bulls. However, a large passive selling order was likely lurking, aiming to target weak stop-loss levels from earlier buyers. Once these stop-losses were triggered, the market reversed direction and moved upward, signaling that the true market trend was bullish.

The Long Game: Trapping Weak Buyers

Market manipulation often involves a more strategic approach, with weak participants being trapped over an extended period. On July 22, the market saw a passive seller absorbing buyers early on, causing the price to slide. After the weak sellers were flushed out through a stop-hunt near the London open, the market reversed sharply, collapsing as the aggressive seller’s position was filled.

Understanding these market manipulations can provide valuable insights for traders looking to anticipate potential market moves and avoid falling victim to large-scale market players.

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