This is an excellent example of a repeatable pattern in the FX market. I would say Textbook because it is perfect – but this happens so often that it is core to the way we think about Market Structure.
Study this Market Structure thoroughly and understand what is going on here. If you understand this – you understand the core of Market Structure.
First you have a mark up (“uptrend”) – by the first Higher High (HH) then a Higher Low (HL). Price continues to drive upward until it reaches a zone where it can no longer continue moving upward.
Market Manipulators purposely create these patterns since they are chock-full of stop liquidity.
The zone at the top where some people call consolidation is really where market makers are unloading their long inventory. They are also starting to accumulate sell side inventory.
As they Sell it down – they Target any Long stops that are resting at the swings. Remember, Buyers need to SELL in the future. Sellers need to BUY in the future.
So if You’re the Market Manipulator and you have SELL inventory – you need to BUY at a profitable price from someone willing to SELL to you at that price.
Who will be looking to SELL to you? All of the BUYERS stops – that are usually clumped together around swing highs and lows. (Since when retail started going long – they were BUYERS and need to SELL in the future. Their stops are the liquidity MM’s need).
We can’t see where the orders are but we have a great idea. They are at the swing areas.
When we can see how retail positioning is changing over time – we know exactly where the MM’s will be targeting.