[In-depth Study of Market Maker Concept] - Steemit Crypto Academy | S4W6 | Homework Post for @reddileep

Every cryptocurrency transaction involves buyers and sellers, this factor causes the price of cryptocurrency assets to fluctuate every time. the more transactions on the cryptocurrency market, the cryptocurrency will experience high volatility. as every transaction that occurs has a relationship with the market maker. With a market maker, the market will be more liquid.

When the cryptocurrency market is more liquid it will cause every transaction to be executed quickly, this is a good impact for traders. A market maker is someone who makes asset prices on the market to be traded, usually, market makers include large asset holders or traders who are active in that market.

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Every market in cryptocurrency has an ask and bid so that trading can take place. market makers will buy the asset with an offer in their favor and sell the asset with an offer that benefits them as well. so with the market maker, it will invite other traders to join in trading these assets.

So it can be said that there are many traders or groups of people who seek profit by becoming a market makers. they also seek to profit from the price difference they make. with the many parties involved in the trade, it will make the price of the cryptocurrency increase. but new traders must be careful of market makers because they can manipulate the market so that traders who do not understand market conditions will experience losses on their trades.

2.) Explain the psychology behind Market Maker. (Screenshot Required)

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Market makers create market liquidity so they can invite other investors to invest in the cryptocurrencies. Market makers have many ways to make profits, usually market makers manipulate the market by investing their capital when the market is getting more liquid and many investors invest they take advantage of the rising price of the coin.

So investors must understand the psychology of the market in order to avoid losses caused by market manipulation made by market makers. I will give an example of cryptocurrency, the price of cryptocurrency is increasing rapidly due to market makers so that the liquidity and price of the coin is increasing.

_{Screenshot from Coinmarketcap}

From the picture above, we can see that in early 2021 the Doge coin experienced a very rapid price increase in a short time, the market liquidity at that time was very high so that many investors invested in the Doge coin, even small investors who were new to cryptocurrencies joined it. so fundamental analysis was not suitable for use at that time because there was no data in the past that showed the coin was suitable for investment. This is all caused by big investors or market makers who push prices on purpose so as to invite other investors. when the price is high enough they destroy the market by taking big profits so many small investors lose.

Market makers can also mislead the market when someone does analysis in trading but the signal given is a false signal as shown below.

_{Screenshot from Tradingview}

From the picture above using the EMA indicator, 2 EMA lines have crossed each other (Golden Cross) which is a trend reversal but due to market manipulation made by market makers who sell their assets back, the market has decreased. so that the signal becomes a false signal.

3.) Explain the benefits of the Market Maker Concept?

• Market Liquidity, market makers can help make the market liquid, making it easier for traders to make transactions, the more people who circulate their assets on the market, the more liquid the market will be, which has an impact on making transactions executed faster.

• Coin prices are increasing, Coin prices will increase if a market maker can attract other investors to invest. this has the effect of attracting other investors to invest in the coin, as they see a good effect to profit when the market is very volatile.

• Coin prices in a stable market, with many market makers, the market becomes volatile, which causes a lot of demand and supply, so the market becomes stable.

• Increase investors in these cryptocurrencies, when the market is very volatile and the price of coins continues to increase, traders and investors will be more interested in joining to trade on these coins.

• Trading volume will increase, the more trading on the cryptocurrency caused by market makers, it will increase the more trading volume, which has a good impact on the fundamentals of the cryptocurrency.

4.) Explain the disadvantages of the Market Maker Concept?

• Small traders who are disadvantaged, Many market makers play with market conditions so that traders who join in the trade will be affected by market games made by market makers.

• Temporary market liquidity, many market makers make market liquidity only temporary, so this can be detrimental to other traders.

• Making false signals, before trading many traders analyze technically, so market makers make false signals for the trade. this is a market maker's strategy to make a profit.

• Losing trades with a take profit - stop loss strategy, traders analyze trades and set their take profit and stop loss if the traders do not understand the psychology of the market then often they only reach their stop loss when their trade is executed.

5- Explain any two indicators that are used in the Market Maker Concept and explore them through charts. (Screenshot Required)

• Exponential Moving Averages

Exponential Moving Averages is an indicator that is often used by traders in conducting technical analysis before trading. This indicator can be used by combining 2 EMA lines with settings according to a trader's trading style. when 2 EMA lines cross each other it will give a trend reversal signal if the trend is bullish and the EMA lines cross each other some traders often call it a death cross. and when 2 EMA lines cross during a bearish trend, it is often called a golden cross.

Many market makers take advantage of this indicator to take advantage. when a trend reversal signal is given, a market maker immediately takes advantage of this indicator. The following are false signals caused by market makers.

_{Screenshot from Tradingview}

From the screenshot above, we can see that the Exponential Moving Averages indicator gives a false trend reversal signal. this is all caused by market makers who manipulate the market and take profits so that the trend continues to become a bearish trend. From this incident, several traders who did technical analysis and made buy entries using this indicator suffered losses because it was not in accordance with their technical analysis.

• Bollinger Bands

Bollinger band is an indicator that is often used by traders in analyzing the market. This indicator provides information on market volatility. this indicator is very identical to the 2 bands that move with each other following the price of the asset with the difference in the distance between the 2 bands traders can measure market volatility on the cryptocurrencies. The 2 bands are the upper band and the lower band. If the candle touches the upper band, a trader will place a buy entry. and if the candle touches the lower band ka a trader will place a sell entry.

So many market makers use this indicator to take advantage by using the indicator to give false signals. here's a screenshot of the bollinger band giving a false signal.

_{Screenshot from Tradingview}

From the screenshot above, we can see that the Bollinger Bands indicator is giving a false signal. this is all caused by market makers who manipulate the market and take profits so that the movement of the chart is not in accordance with the technical analysis of some traders who make buy entries at that time.

Conclusion

There are many effects given by market makers, one of which is market liquidity in the cryptocurrency. with high market liquidity will have a positive impact such as orders will be executed quickly. this will also have an impact on small investors who will join to invest in these assets. However, it should be noted that market makers often manipulate the market to make a profit.

Understanding the psychology of the market is really needed, because many market makers use large amounts of capital to increase the value of these assets so that when the value of these assets continues to increase and the number of investors has increased, they will take advantage of the trades they make. This will result in losses for small investors who are provoked into market manipulation made by market makers.