A popular question retail traders ask is how institutional traders trade. There are many different types of smart money concepts and strategies. The “Forex Master Pattern” is an alternative type of technical analysis that shows the true psychological patterns of the financial markets.


Main Points

  • The “Forex Master Pattern” is an alternative type of technical analysis that shows the true psychological patterns of the financial markets.
  • There are three phases in one market cycle: contraction, expansion, and trend.
  • Retail and smart money act in the opposite direction, and retail is frequently used as a pawn by institutional traders.
  • These contraction, expansion, and trend principles are versatile and can be used to create powerful and profitable strategies.

What is the Forex Master Pattern?

The “Forex Master Pattern”, is a alternative type of Technical Analysis which shows the true psychological patterns of the Financial Markets. This pattern has 3 Phases, which is known as the Contraction, Expansion, and the Trend Phase, which will complete one market cycle in this term. 


This pattern also creates a concept known as the “value line,”  which is the fair value zone or the neutral belief zone where buyers and sellers agree is the fair value. Consider it in terms of the center of gravity. 

The Contraction Phase

The contraction phase is the first phase of the pattern. This is where the contraction zone is established, which is the “fair value zone.” It will have low institutional volume and not much movement. You should always avoid trading in this zone because trading after this zone can result in large moves that can harm your trades.


There is a lot of sideways movement in this phase, and the range is confirmed to be getting smaller. It is also defined as higher lows and lower highs occurring simultaneously. Understanding where the first phase starts is key to success using this type of technical analysis and the Forex Master Pattern concepts.


We developed a TradingView indicator that accurately plots contraction zones on every timeframe and shows where possible expansions could be taking place, for 50 USD monthly.

The Expansion Phase

The second phase is known as the expansion phase. This is where institutional volume starts increasing. The decreasing range starts increasing, and new highs and lows are created.


In the expansion phase, institutional investors start accumulating positions. This is where the “trap” moves have been set, and now the real positions are being placed. Perhaps the market makers are taking profits or planning shorts or longs.


This is known as “the play,” and institutional traders are buying at a discount. 


The Trend Phase

The trend phase is the final phase in the Forex Master Pattern Market Cycle. This can be an uptrend or a downtrend, and it is at this point that institutional traders begin to take profits.

Some institutional traders and retail traders that are aware of this type of market cycle accumulated their positions ( Typically Long below value line, and Short above value lines ), and now have ridden a specific trade and then they would start to pay themselves once the price goes back to the value line. These players with big liquidity however have one problem, but they can manipulate the emotions of traders to take profits, the issue that they have is liquidity.


The ease with which or ability to convert assets or securities into cash, or to buy or sell quickly, is referred to as liquidity. So, what exactly is the issue with institutional traders?

They have a lot of money and need a lot of profits. They cannot just sell their entire positions; there might not be enough liquidity in the market to do so. Instead, they will have to thoroughly plan their entries and exits.

So let’s say an institutional trader planned to buy a currency; they bought it below value, rode the trend up, and now they want to take profits. They will induce FOMO and manipulate the emotions of retail traders, then sell their positions to the retail traders above their value. What will this do?

This will trap the retail trader in terrible trades, and then, traditionally, once it goes back below value, the retail trader will either sell back to the institutional trader or be liquidated. And this is a cycle that always happens in the market. Institutional traders will even do it indirectly, even if they aren’t aware of this pattern; it’s just a matter of logic.

You are doing a BUSINESS while trading, your main objective is to make money, and how do you do that? You buy low and sell high, as cliched as it might sound, would you rather buy something at a discount or overpriced.


Contractions in Different Timeframes

Contraction zones can exist in any timeframe. The Forex Master Pattern is extremely versatile and can be used to create various types of strategies. Remember, this isn’t a strategy but a concept of market cycles. It simply states that there are three phases of a market cycle: the contraction, expansion, and trend phases. So you can use this information to create strategies that revolve around these market cycles.


Some traders use this pattern to create scalping strategies, others use it for day trading, and some even use it for swing trading; it is extremely versatile. You can use it to see sentiment in the market, find out where retail places its stops, and combine it with indicators.


So the point of this section is to discuss the different timeframes and the pattern. Obviously, higher-timeframe contractions will have more significance and strength than the lower ones. A value line retrieved from a contraction zone in the 4-hourly timeframe should obviously have more significance than a 15-minute contraction zone.


Some traders will even develop a “Directional bias,” which means they prefer to find long or short opportunities. Your higher timeframes are your key to success with this methodology. Your higher timeframe will allow you to develop a one-sided directional bias in order to have entries on the lower timeframes. Overtime, while learning to master this, you will see significant growth in your portfolio and a better win rate.


Questions That Traders May Have

Do Forex Master Pattern strategies work 100% of the time? 

Answer: Sadly no. No one can predict the future in trading, at least. You will have wins and losses; what you must ensure is that your risk management strategy is clear. As for institutional traders and big liquidity players? They can plan events and manipulate the markets, but not even they can predict the future. There are too many variables in the world to predict the future. Can you predict when a catastrophic disaster is about to happen?

Are contraction zones just not support and resistances?

Answer: Contraction zones can act as supports and resistances, but they are not them. The value lines formed from the contraction zones are simply zones where buyers and sellers are neutral, and this acts like the center of gravity until another contraction is formed. Sometimes they will act as supports and resistances, especially since many traders tend to take profits once the trade reaches the value line, either long or short.

Cant retail traders still make profits?

Answer: Yes. Retail traders still make profits, but not all of them. Most retail traders might just make temporary profits, which will be used as liquidity for institutional traders.


We have reached the end of this post, so what have you learned about this approach to market cycles? This post goes over the basics of these three phases that are present in the market; there will soon be more content related to the principles of contraction and expansion.

If you want to purchase our contraction indicator which accurately plots strong value lines, then go to this link:

So now go and practice these principles and see how you can improve your trading game.


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