Understanding Market Structure from a Retail Perspective
A practical guide for new and developing traders
Most retail traders start with indicators, patterns, and YouTube strategies — but very few begin with a clear understanding of who actually moves the market and why price behaves the way it does. This guide breaks down market structure into three main groups (plus one special case), using a simple, practical model that reflects how the market truly operates.
This is not academic theory. It’s a retail‑friendly explanation of the incentives and behaviors that shape price action every day.
(Wish I had this mind‑set when I started trading equities.)
1. Institutions
(Banks, asset managers, pensions, sovereign funds — including firms like PIMCO)
Role:
Institutions set the long‑term direction of the market. Not because they’re trying to, but because their size forces them to.
Behavior:
• Move slowly and quietly
• Hide their footprints to avoid moving the market against themselves
• Accumulate and distribute over weeks or months
• Ignore retail entirely
• Monitor market makers only for liquidity conditions
• Operate based on value cycles, macro flows, and capital allocation mandates
Footprints:
• Subtle volume anomalies
• Absorption
• Rotation
• Volatility regime shifts
• Slow, persistent trends
Institutions are the “deep current” beneath the surface.
2. Market Makers (including HFT and certain hedge funds)
Role:
Market makers control the short‑term game — the microstructure. They manage inventory, not opinions.
Behavior:
• Appear to create traps when rebalancing inventory — but these are structural, not intentional.
• Trigger stop clusters indirectly when liquidity is thin — but not intentionally.
• React to institutional flow
• Provide liquidity when it benefits them
• Withdraw liquidity when it doesn’t
• Exploit predictable retail behavior
Footprints:
• Whipsaws
• Stop runs
• Fake breakouts
• Liquidity vacuums
• Sudden volatility pockets
Market makers don’t care about direction — they care about inventory and order flow.
“Evil Market Makers”
The Retail Story vs. The Real Story
Retail traders often blame Market Makers for:
But here’s the truth:
Market Makers (MMs)
Not the villains — just the plumbers of the market
What they actually do:
They care about inventory risk and order flow toxicity.
They’re not evil — they’re mechanical.
Directional Players (Hedge Funds, Prop Desks, Large Swing Traders)
These are the real architects of trap‑like behavior
What they actually do:
Retail blames market makers for traps, but the real trap setting comes from hedge funds and large directional players. Market makers simply manage liquidity; directional players exploit predictable retail behavior.
Bottom line: Retail is predictable — and predictable behavior is what directional players exploit.
3. Retail Traders
Role:
Retail provides liquidity and volatility. Retail is the most predictable group in the market.
Behavior:
• Chase moves
• Panic early
• FOMO late
• Buy tops and sell bottoms
• Trade patterns without context
• React instead of anticipate
Footprints:
• Volume spikes at the wrong time
• Failed breakouts
• Emotional candles
• Late entries, early exits
Retail’s best edge is to think like institutions, not like other retail traders.
4. Scalpers (Special Case)
Scalpers operate in the one domain where market makers can’t fully control outcomes: micro‑inefficiencies.
Behavior:
• Trade reaction, not prediction
• Exploit volatility pockets
• Avoid overnight risk
• Focus on speed and execution
Scalping can be profitable because it lives in the cracks between liquidity events.
Why This Model Matters
Understanding who moves the market — and why — helps retail traders:
• avoid traps
• recognize institutional footprints
• stop fighting the wrong players
• choose strategies that match their timeframe
• adopt a mindset that aligns with real market behavior
This simple framework can save new traders years of confusion.
Summary
• Institutions: “They move the deep current of the market.”
• Market Makers: “They manage liquidity, not direction.”
• Retail: “They provide volatility and predictability.”
• Scalpers: “They operate in the cracks between liquidity events.”
A Quick Note on Indicators
As I move forward, I intend to focus and develop study sets around five main categories — no more, no less, and with no redundancies.
This doesn’t make indicators useless, but it does mean that stacking many of them often repeats the same information. What tends to matter more is combining different dimensions of information.
Choosing independent dimensions prevents redundancy and gives you a clearer picture of market behavior.
• Trend (directional bias)
• Momentum (strength of movement)
• Volatility (expansion/contraction)
• Volume (participation/confirmation)
• Price structure (context, levels, behavior)
A practical guide for new and developing traders
Most retail traders start with indicators, patterns, and YouTube strategies — but very few begin with a clear understanding of who actually moves the market and why price behaves the way it does. This guide breaks down market structure into three main groups (plus one special case), using a simple, practical model that reflects how the market truly operates.
This is not academic theory. It’s a retail‑friendly explanation of the incentives and behaviors that shape price action every day.
(Wish I had this mind‑set when I started trading equities.)
1. Institutions
(Banks, asset managers, pensions, sovereign funds — including firms like PIMCO)
Role:
Institutions set the long‑term direction of the market. Not because they’re trying to, but because their size forces them to.
Behavior:
• Move slowly and quietly
• Hide their footprints to avoid moving the market against themselves
• Accumulate and distribute over weeks or months
• Ignore retail entirely
• Monitor market makers only for liquidity conditions
• Operate based on value cycles, macro flows, and capital allocation mandates
Footprints:
• Subtle volume anomalies
• Absorption
• Rotation
• Volatility regime shifts
• Slow, persistent trends
Institutions are the “deep current” beneath the surface.
2. Market Makers (including HFT and certain hedge funds)
Role:
Market makers control the short‑term game — the microstructure. They manage inventory, not opinions.
Behavior:
• Appear to create traps when rebalancing inventory — but these are structural, not intentional.
• Trigger stop clusters indirectly when liquidity is thin — but not intentionally.
• React to institutional flow
• Provide liquidity when it benefits them
• Withdraw liquidity when it doesn’t
• Exploit predictable retail behavior
Footprints:
• Whipsaws
• Stop runs
• Fake breakouts
• Liquidity vacuums
• Sudden volatility pockets
Market makers don’t care about direction — they care about inventory and order flow.
“Evil Market Makers”
The Retail Story vs. The Real Story
Retail traders often blame Market Makers for:
- fake breakouts
- stop runs
- liquidity sweeps
- sharp reversals
- exhaustion wicks
But here’s the truth:
Market Makers (MMs)
Not the villains — just the plumbers of the market
What they actually do:
- provide liquidity
- quote both sides
- hedge inventory
- manage spreads
- internalize retail flow
- respond to volatility
- trigger stop clusters indirectly when liquidity is thin — but not intentionally
- fake breakouts (only when forced by liquidity conditions, not intent)
- target retail
- engineer traps
- push price directionally
They care about inventory risk and order flow toxicity.
They’re not evil — they’re mechanical.
Directional Players (Hedge Funds, Prop Desks, Large Swing Traders)
These are the real architects of trap‑like behavior
What they actually do:
- accumulate quietly
- distribute quietly
- sweep liquidity
- trigger stop clusters
- fake breakouts/breakdowns
- engineer volatility pockets
- exploit predictable retail behavior
- to get filled at better prices
- to reduce slippage
- to mask their footprint
- to manage large positions
- to exploit emotional retail flow
- size
- motive
- patience
- directional intent
Retail blames market makers for traps, but the real trap setting comes from hedge funds and large directional players. Market makers simply manage liquidity; directional players exploit predictable retail behavior.
Bottom line: Retail is predictable — and predictable behavior is what directional players exploit.
3. Retail Traders
Role:
Retail provides liquidity and volatility. Retail is the most predictable group in the market.
Behavior:
• Chase moves
• Panic early
• FOMO late
• Buy tops and sell bottoms
• Trade patterns without context
• React instead of anticipate
Footprints:
• Volume spikes at the wrong time
• Failed breakouts
• Emotional candles
• Late entries, early exits
Retail’s best edge is to think like institutions, not like other retail traders.
4. Scalpers (Special Case)
Scalpers operate in the one domain where market makers can’t fully control outcomes: micro‑inefficiencies.
Behavior:
• Trade reaction, not prediction
• Exploit volatility pockets
• Avoid overnight risk
• Focus on speed and execution
Scalping can be profitable because it lives in the cracks between liquidity events.
Why This Model Matters
Understanding who moves the market — and why — helps retail traders:
• avoid traps
• recognize institutional footprints
• stop fighting the wrong players
• choose strategies that match their timeframe
• adopt a mindset that aligns with real market behavior
This simple framework can save new traders years of confusion.
Summary
• Institutions: “They move the deep current of the market.”
• Market Makers: “They manage liquidity, not direction.”
• Retail: “They provide volatility and predictability.”
• Scalpers: “They operate in the cracks between liquidity events.”
A Quick Note on Indicators
As I move forward, I intend to focus and develop study sets around five main categories — no more, no less, and with no redundancies.
This doesn’t make indicators useless, but it does mean that stacking many of them often repeats the same information. What tends to matter more is combining different dimensions of information.
Choosing independent dimensions prevents redundancy and gives you a clearer picture of market behavior.
• Trend (directional bias)
• Momentum (strength of movement)
• Volatility (expansion/contraction)
• Volume (participation/confirmation)
• Price structure (context, levels, behavior)
