What The 1% Know About Markets That You Don't

本站添加: 2026-05-25

[00:00:02]You might find yourself struggling to understand what's going on in the market or being more emotional than you would like to be about what's happening in the markets. And a lot of the stuff that I'm about to go over is going to directly address why that occurs and how you can actually be avoiding that by thinking a lot more like a market maker or how the top participants in the market are moving. So let's dive into this a little bit.

[00:00:34]The first thing to think about here is like how do markets actually move? And for anyone who's familiar, you'll have noticed these kinds of graphics. This comes from uh the inner circle trader or ICT and uh essentially the concepts that he's taught. But today we're going to back up a little bit and talk about this from an even more first principles kind of perspective. Stick with me throughout all of this because I promise this is going to completely change the way that you look at markets, how they move, and what you should be doing.

[00:01:06]So you might have heard of the efficient market hypothesis before. There's two different major philosophies of how markets move and this information comes from you can get this in the book called uh a random walk down wall street. Okay, I highly recommend reading that book.

[00:01:21]Now efficient market hypothesis is the first major original idea of how markets move. The idea is that markets are like open book tests, right? So all of the information about stocks and everything in the markets is available. So prices are fair at all times.

[00:01:40]Now we all know that that's not true, right? Um insider trading exists as an example, right? So some people know things that others don't. Not only do people do insider trading successfully without people knowing, but also you see people getting convicted of crimes in that regard. And most of the time they're profiting from that, right? So let's just be clear now, right? So financial scandals happen. People are always profiting from hidden info. We have bubbles and crashes, right? So prices swing beyond any rational value whatsoever.

[00:02:18]It's clearly not only the information, right, that contributes to how assets get priced in the markets. So the key idea here to take away is that efficient market hypothesis looks neat on paper, but it doesn't really match reality. So the other major theory of how markets move is what's called the castle in the air theory.

[00:02:38]And this is the idea that markets move based on what other people think. Right?

[00:02:43]It's much more of a a cognitive and emotional process. So emotions and perception drive price. Fear, greed, hype, and panic.

[00:02:53]So the key idea here is that markets are emotional and potentially predictably emotional. Okay. And that's something that can be exploited.

[00:03:05]So let's talk a little bit more about like how do markets actually move and what are the functions that certain players like market makers actually play in the market. So a market maker is a firm or you could even look at it as an algorithm uh or traders that keep markets moving. Okay. So the reason I've delineated these different ideas here is that the firm right is where it takes place. But there are individual traders in those firms. Drain Street is one of the biggest ones. Uh Citadel is another really big market making firm and they also have algorithms, right? Or uh software that they're using to execute trades. And what a market maker does is they buy at the bid and they sell at the ask. And we'll talk about what that stuff means in just a second. So the goal of the market maker is to create liquidity so that trades can happen smoothly. Essentially, there's always going to be a bit of a discrepancy between what buyers are willing to buy at. Okay, this is called the bid. And then the price at which sellers would like to sell at. And that's called the ask. I'm asking for this price. And if I'm a buyer, I'm bidding at a certain price to buy. All right. So now let's talk about what liquidity is. Because if the market maker's goal is to create liquidity, then what is liquidity?

[00:04:22]Liquidity in the standard term is like how easily you can buy or sell without moving price. Okay? So high liquidity means that large trades can happen quietly without there being a big deal. Low liquidity means that even small trades are going to cause really big swings in the market, right? Because if you have a small supply of something, right? For instance, uh at a certain price, then you're going to have much larger movements when trades actually take place at all of these different prices.

[00:04:50]It's like um you can think of an order book, right, as like a a ladder almost, right? So when you've got a few orders at this price and then a few orders at different prices, right? Then the market is going to have to move very rapidly through each of those places in order to get to where there's a price that uh buyers and sellers are going to agree upon. I hope that made some sense. Now, the analogy that I want to use here is like liquidity. you could look at as areas of interest or clusters or blocks of orders. So, what I have right here on this chart is this very clear line.

[00:05:29]Okay? So, anyone who's been inside of my community, you've known that I've been calling for lower prices on Bitcoin for almost I mean for quite a few months now. And um with that, the reasoning for that was because you can look at this on the price chart alone and you can also go into softwares and actually see where orders are clustered. Okay? And the thing is is you really don't need to look at that software because you can see it on the charts. All right, this lower level down here that where that red line is, you can tell that essentially a bunch of traders have put what are called stop orders at that level, right? It's just a clear swing point in the market. And because of that, there is a cluster of orders that exists at that level. And when there's this cluster of orders at that level, essentially there's a bunch of people saying, "Hey, I'm going to sell at this level." All right, there's a bunch of people that have been long.

[00:06:26]They've been buying ever since that level. Okay? And what they did was they said, "I'm going to put a sell to stop order at that low." And that sells stop order is essentially liquidity. Okay?

[00:06:39]Because they're saying, "I'm going to sell my Bitcoin in this case down there." And so if I'm a market maker or an institution, I'm going to recognize that that means that if there's a bunch of people willing to sell down there, then that means that there's an opportunity for me to buy down there. Okay? There's a bunch of willing participants who want to sell there. So I'm going to buy from them there. Okay? So this is why I've been calling for lower prices in Bitcoin because this was a very clear obvious level of liquidity that shouldn't have just been left alone. And if I were a market maker, I would want to buy Bitcoin right down here below $98,000.

[00:07:18]Now, whether or not we actually get there, we'll have to see, but this is what I've been calling for. Now, let's just kind of talk about what market makers are actually doing. Without market makers, trades uh and markets would be a lot more chaotic. You know, one single large buy could spike price and then one single large sell could crash the price of markets. So, market makers help to smooth all of this out while profiting from the spread. The spread. Let's dig into what that really means. So, there's bid, asks, and spreads. So, the bid price is the highest price someone wants to buy an asset for. Okay? And you can see this on your order book or when you're trading or anything on a on a software, you can see the bid and the ask price. The ask price is the lowest price someone wants to sell at.

[00:08:01]Okay? The spread is the ask, the asking price minus the bid. Usually, the ask, right, is going to be higher than the bid.

[00:08:11]Okay. So that is where market makers make money. They will buy at the bid and then sell at the ask.

[00:08:22]So the historical origin of this is that you had specialists back in the 1800s who insured orderly markets. And the modern version is we just have these high frequency trading and automated liquidity providers, right? It's all just robots and AI if you want to call it that. So the key insight here is that spreads are tiny and constant profits uh are what these market makers are looking for while just keeping markets functional.

[00:08:51]Now the thing to understand about this and what it means for you as a trader is that there are stop hunts. Okay? And these stop hunts kind of exploit emotion. So what this means like let's go back to this. Market makers are going to move prices to where people have their stop-loss orders. Okay? Because that's where there's liquidity. That's where there are orders, right? So that is where someone can make that purchase transaction is where there's a bunch of people that are willing sellers. So what happens all the time in the markets and if you've been a trader and you've been investing, you might have noticed that you'll put your stop-loss at a level that immediately gets hit and then what happens? The market reverses from that level immediately, right? And this is called a stop hunt. Okay? And so anyways, um, so stop hunts is when you see price pushed to trigger stop-loss orders, which creates liquidity for institutions, right? They're literally buying from you where you're willing to sell. In this case, if price is going down, and the retail sees manipulation, right? But professionals are seeing just organized liquidity creation. So many traders place their stops below lows or above highs. And when price dips, right?

[00:10:03]And these stops get triggered, market orders get filled, institutions will buy and the price will then immediately reverse from that level. So the third kind of way that people look at markets and you know a lot of this can be contributed or attributed to me excuse me to ICT right he he's popularized a lot of this talk where there's like liquidity in market makers are the major way to look at how markets are actually moving. So markets move to where liquidity lives not because of logic or because of fair pricing but rather because market makers and institutions engineer price moves to create liquidity and then these market makers will then profit from human emotions, fear, greed and FOMO. So the idea here is that castle in the air behavior enables this market making and liquidity perspective of how markets actually move.

[00:10:51]So hopefully some of this is making sense and let's talk a little bit about the key points takeaways from this part of everything and then the things that you can be doing right to execute a little bit better. So key takeaways are price doesn't really move randomly it moves to where liquidity exists and this is a theory right you can look at markets however you want this is how I look at markets and you know uh uh this is how uh you could logically derive some information of how markets move. So market makers and institutions exploit predictable human emotions. All right.

[00:11:23]The efficient market hypothesis is nice in theory but in reality is full of information asymmetry and uh market swings and emotional swings. The castle in the air behavior is what makes markets predictably emotional enabling market makers to profit. So you want to be understanding this concept of liquidity. You want to understand bid asks spreads. You want to understand stop hunts and see the market's hidden architecture.

[00:11:46]While retail sees price, the 1% see plumbing and they profit from it. So the major thing to think about, like let's just pull up that example one more time, is if you're a retail trader, you want to kind of avoid putting your stops in obvious places, period. And if you feel like your stop is in an obvious place, then you might be the liquidity, right?

[00:12:06]You might be creating liquidity for market makers and institutions to take advantage of. Just know that, right?

[00:12:11]Just be aware of that as you're placing your stops in the market.

[00:12:15]Let me try to give a better example. Um, when you look a little bit further beyond just that red line, you can see there's these levels that kind of are close to one another. Okay, these levels that are really close to one another, those smooth lines. Okay, those smooth lines become very obvious places where there's a ton of extra liquidity being generated. Okay. So, when you're trading in the market, the most effective thing that you can do is waiting for moments where you're seeing a bunch of liquidity being taken, where you're seeing a stop hunt take place.

[00:12:54]And then, for instance, in this scenario, if you're still bullish on the market, then you want to wait for all of these stops to be taken. And you should be really you should be putting your limit orders at those levels because that's what institutions are doing.

[00:13:09]You're stop selling there and they're buying limit there. They're they're creating buy orders right next to your stop orders. Okay. So, just an example of how you can move differently. Let's move on to part two because another big thing that market makers and the 1% in general understand about markets that most people don't is that there are so many different ways that you can express an idea in the market.

[00:13:34]Markets are not just up and down. All right, most retail traders think in 1D.

[00:13:39]Is the price going to go up or down? The 1% and market makers think in three different dimensions. You have direction. Are we going to go up, down, or maybe even stay neutral? And then there's time. How fast will something happen? When will something happen? Will it be in days, weeks, or months? And then there's the volatility of all of this. So, how violently will price move in between point A to point B, for example.

[00:14:05]So, just as an analogy, it's like if you are a meteorologist, it's not enough to know that it's going to rain. You might also want to tell people when it's going to rain and how hard it's going to rain and how long is it going to rain for, right? Um, so let's talk about the different instruments that you can use to express ideas in the market. First, you have the spot market. You can buy or sell an asset outright, right? When you go to your traditional brokerage and you want to buy the S&P 500 or an S&P 500 ETF, you can go and buy the SPY from uh SPDR, I think it is, that is a spot instrument. When you buy a stock or an equity, for instance, uh right directly from your broker on the spot market.

[00:14:47]Now, this expresses direction only, right? It's long-term usually, very simple. There's no expiration to it. If you own it, you hold it, and when you sell it, it's gone. Now, then you have futures contracts.

[00:14:59]And a futures contract is a little bit different. There's a little bit of a time element involved because futures contracts expire at a certain date. So, it's a derivative, right? So, you're not buying the underlying asset, but you're buying something that is a derivative of whatever it is that you're trying to trade. There's different types of futures. We won't dive into that today.

[00:15:16]A futures contract is a contract to buy or sell at a set price in the future.

[00:15:21]And this helps to express direction and time and you can leverage um this leverage that you can use from having derivatives here allows precision but it also can increase your risk. Okay, so for instance, you can go short now.

[00:15:34]Okay, it's it allows you to do new things that you can't really do on the spot market. So anyways, there's also options and you can use options to go long on options. You can buy options.

[00:15:45]Okay, for instance, and when you buy options, you have the right to buy or sell something at a set price. This expresses direction. It also expresses time because options expire at a specific time. And you can also get volatility expression through options.

[00:16:01]Okay? Because there's a piece of the options pricing mechanism that includes volatility. The implied volatility of the asset is included in the pricing of options. Now, when you buy options, they're asymmetric payoff opportunities because you have a defined loss, which is the amount that you paid for the option, and you might have unlimited opportunity in terms of gain. So, this is one of the beauties of going long options. You have these asymmetric opportunities and ways to express your ideas. Now, if you go short options by selling options, and this is something that a lot of retail traders don't know is a thing, but it's hugely important to think about how you can define risk and also generate income in the markets. So, you can sell someone else's right to buy or sell an asset in the options market. That's what that's what it means to sell an option. Okay?

[00:16:52]So now you can express possibilities a little bit better rather than just conviction in a directional uh bet or through time as well. So when you sell an option, you're essentially going to collect the premium. So the same way that you can buy an option, right? You can buy the right to buy or uh to buy or sell a price at a set, excuse me, an asset at a set price, you can now sell that and collect that premium. So instead of having to buy that option, you're actually the one who's selling it and earning that amount that someone else would buy that option for. Okay.

[00:17:24]Now with that, there's different kinds of risks involved. Now you can have unlimited risk. Okay. And you have to manage that a lot more carefully.

[00:17:33]But you can also create defined risk scenarios with an options uh selling strategy. There's a lot of different ways that you can use options. We're not going to dive into all that today. Now there's also combinations, right? So you can mix all these different types of instruments. You can mix spot with futures and with options. Okay. And this can allow you to have a defined risk trade while still capturing um major asymmetric upside opportunities. Okay.

[00:17:59]So once again, we're not going to dive too super deep into that today. We go into that stuff inside our community.

[00:18:05]Now summary, retail thinks in 1D, up or down. Professionals thinks in 3D.

[00:18:11]Direction, time, and volatility. Now, spot equals simple long-term direction up or down. Futures, you can start to add timing and you get leverage as well.

[00:18:21]Options, you're going to add volatility.

[00:18:23]You're going to add probability and you have asymmetry in the way that you're expressing these ideas. Now, asymmetry, by the way. I can bet one and get two back.

[00:18:34]Hopefully that makes sense. Just wanted to clarify that. Um, markets are multi-dimensional. If you're only thinking in one dimension, you're leaving a lot of money and opportunity on the table.

[00:18:44]That's something that the 1% of market makers understand. Now, the part three of all of this is macroeconomic indicators.

[00:18:52]A lot of people just ignore this stuff.

[00:18:53]And I think that's a massive mistake. If you want to be a successful investor, trader, you can't just ignore macroeconomics. I mean, this is what all markets are really based off of. It's like, what are the big big big players?

[00:19:06]What are governments doing around the world? And we have to know that stuff.

[00:19:08]Otherwise, we're trading like we're blind or we're investing like we're blind.

[00:19:13]So markets don't move in a vacuum. Big picture trends like credit cycles, liquidity, and monetary policy shape appetite, volatility, and price direction. So professionals use macro to align their strategies and predict where liquidity will appear. Now the key indicators that top traders and brokers and investors, institutions watch are things like the credit and business cycle. The economy moves in cycles. You have expansion, okay, which leads to optimism. And then you have contraction which can lead to fear. And so credit availability drives growth.

[00:19:50]More lending equals more buying. And less lending means tighter markets, right? Less buying. So the market response is that bull markets often coincide with easy credit and expansion.

[00:20:03]And then bare markets are often going to coincide with credit tightening and contraction. So some key metrics that you want to look at are things like GDP growth. Is GDP going up? Right? And you can say that could be a result of the fact that credit, right, is cheaper, right? So if credit is cheaper and GDP is going up, then you know that you've got a normal kind of scenario in place.

[00:20:25]You can look at the unemployment rate.

[00:20:26]That's going to tell you a little bit of like how our business is doing. Our business is hiring more people.

[00:20:32]You can look at credit spreads. You can look at how credit spreads are basically the risk that people are looking at between a corporate bond versus a sovereign nation's bond. Okay? So a a Google bond versus buying a US treasury of the same maturity. Okay? So that's what a credit spread is. And the idea is that a corporation is much more likely to default than the US. Okay? And because of that, when you see the spread between the corporate bond and the US Treasury bond widening, it means that there's a higher default risk in the market for these corporations. It's more likely that they're going to default.

[00:21:12]So, investors are demanding a higher yield from that corporate treasury.

[00:21:18]Hopefully, that makes some sense. Now, I'm going to keep moving on. You can find all of this data right on the Bureau of Economic Analysis site or even the Bureau of Labor Statistics site, right? So, you can always be looking at that. And in fact, I always tell people to go to forexfactory.com to check in on a lot of these kinds of data as it comes out. Now, liquidity is another thing to think about the amount of money that is available in markets.

[00:21:42]Okay? So, high liquidity is going to equal smoother price moves and tighter spreads. Low liquidity, less money in in the markets to go around. economies, you're going to have sharper swings and more chaotic moves. Professionals are tracking central bank actions, institutional flows, and retail positioning to see where liquidity is building up or drying up. So, just some metrics that that you can look at are things like the money supply M1 and M2, central bank balance sheets, okay, when central banks are when they're growing their balance sheets, right? there. That means that they're usually going out and buying assets, right? And providing liquidity to the markets. But when central bank balance sheets are going down, right? Then that means that essentially liquidity is being pulled back out of the markets. Now you can look at Fed repo operations. You can look at trading volumes. Can also tell you a little bit of like how much liquidity is in the market. So you can find information about like M1 M2 on the Federal Reserve website. Uh St. Louis Federal Reserve publishes all of that information.

[00:22:44]Same thing for the central bank balance sheet. You can find this stuff very openly uh on the markets. Now, monetary policy, another thing to look at. What are central banks doing with interest rates? Are they doing quantitative easing? Uh they're influencing the cost of money in some way. Are you aware of that? And are you utilizing that information to recognize what the bigger trends are that institutions are using, right, to make their decisions with?

[00:23:08]Lower rates means cheaper borrowing, which can be bullish for markets. Okay?

[00:23:12]Higher rates means more expensive money which can mean that there's a little bit less investment potentially that's going to be happening in the overall economy which can then influence markets. So market makers anticipate how policy affects risktaking behavior. Now you also have fiscal policy. You have government spending and taxation and these are going to influence economic growth. So for instance we had the big beautiful bill passed this year. Okay, that I made a video about that early in the year and it was like, okay, well, now that we've got trillions of dollars of spending that's potentially coming in, what is that likely going to do?

[00:23:43]It's likely going to lead to higher inflation over time. Now, it's very basic interpretation of that, but different things to be thinking about.

[00:23:51]If you see stimulus, right, when you have more money in the system, that can boost assets. You have taxes, you have tax cuts. Okay? If you if you have more taxes, then you might have less liquidity. Okay? you have lower taxes, people might be spending more money, investing more money, and you have might have more liquidity in markets, things like that to think about. It's not that direct, but just things to think about.

[00:24:12]So, macro traders see policy as a lever for liquidity and sentiment. All right, so metrics to look at here are government spending, taxation changes, and stimulus packages. You can find this stuff on the US Treasury's website or the Congressional Budget Office.

[00:24:27]Now, macro sets the playing field, right?

[00:24:31]like you can't ignore it. You have to actually understand what's going on in the macroeconomic cycle.

[00:24:37]Now, hopefully just quick summary, macro equals the environment. The micro can be like what you're actually seeing in specific assets or what you're doing with your trades. The credit and business cycles are when people are optimistic or fearful. Liquidity is where you can safely and quickly move money around in the markets. Okay? If there's high liquidity, then you can easily get in and out of your own trades, right? And there's just more money in the markets, more flow in the markets, and that typically leads to more risk on sentiment. So liquidity like we we broke it down in two different kind of ways. There's like liquidity in the market itself, and then there's like liquidity in the macroeconomic cycle. Okay, hopefully that makes sense. Now, you have monetary policy, which sets the cost of money, influences risk-taking. You have fiscal policy, which is the government's influence on liquidity and sentiment.

[00:25:25]And then understanding the macro means seeing like the bigger trends and the tides, right? All of the really major things that are happening in the markets. So the 1% aren't just trading without this information. They trade with the understanding of the currents beneath every single market move. Now markets are not random. They move to where there's a lot of stop orders and where human emotions are the strongest.

[00:25:45]And this is kind of more on the micro, you know, intraday and weekly kind of level, right? Because that's when retail traders are making positions. They're making positions every day and on a weekly basis.

[00:25:56]Now, it's good to think about the fact that market makers and institutions are profiting from fear, greed, and predictable reactions that people have.

[00:26:03]So, when you see these news headlines, a lot of times they're really just the excuse for why markets wanted to do what they were going to do anyways. Just saying. Now, uh you want to start thinking about these macro indicators.

[00:26:13]Think like the 1% in 3D. Think about direction, time, and volatility, not just market going up and down. Okay?

[00:26:19]Retail traders, they react. pros anticipate that example of like setting your your limit order to buy where you're seeing all of those stops or that major swing in the market that puts you in the position to be getting ahead of things as they occur. So the market's not just out to get you. It's just a game that you have to be understanding how it's actually being played. All right. Now, finally, if you found any of this useful, then sign up for the free newsletter in the description at the very least. And if you want personal guidance on how to dig deeper into this information, how to actually use this information for yourself, then you can click the other link in the description that will take you to a page where you can learn more about what it is that we're doing and how you can also talk with someone on my team for free. No obligations, just chat, understand your situation, and see if there's anything that we can be doing to help you. And other than that, it's Keith D. I'll see you next time. Let me know what you thought of this in the comments down below.