Friday Pullbacks: Why Institutions Square Up Ahead of the Weekend (Gold example)

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Hello traders,

Hope you all had a great trading week. Personally, mine was amazing. This Friday, we saw huge downside moves across multiple assets to close the week and many newer traders were asking: “Why does this sometimes happen?”

In this article, we’re going to talk about an important concept that can seriously elevate your game during trending weeks. It will help you understand how institutions position themselves, and it will sharpen your market intuition. It took me a while to internalize it, but once you see it clearly, certain patterns become obvious. 


Square Up day

When an asset is trending all week, we often have on Friday a “square up” from institutions. Market makers are not entering the same way we are on the market, they have to take their profits and close their most toxic positions before the week ends to rebalance their portfolio to not be to exposed on one side. This is why on Fridays we can see huge pullbacks or we can even come around the same level we were at the beginning of the week.

The reason why institutions have to square up is because the weekend is considered a risk. Why? Because the markets are closed. Which means that there isn’t any buyers or sellers in the market and you cannot take any actions. You can try it yourself. You can’t take a trade, can’t close an open trade, etc. You basically have no control. 

This is a risk because if something really unexpected happens on the weekend that is not in their favor, they will lose a lot of money. And i’m not talking about thousands of dollars like us. They will lose billions and billions of dollar. They can’t afford to do that.   

So by taking profit taking and rebalancing ahead pf the weekend. They will make money and reduce their risk exposure to an unexpected event. So if something happens, they can be ready. Often, if nothing happened on the weekend, they will resume their plan the next trading week.

So, this is why we can see violent pullbacks on Fridays even if fundamentally nothing major happened. Sometimes, the square up can even start on Thursday. It’s just institutions getting their books in order. 


Example on Gold

There’s more to say about this concept but we’ll end this article by giving a perfect example on gold this week:


Thanks for reading and I wish you to kill it next week. 

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