Investment Consulting

Wednesday, May 22, 2013

Where Are Banks Buying And Selling In The Forex Market?

Price moves to and from the price levels with significant buy (demand) and sell (supply) orders in a market.

London is one of the Forex trading hot spots on the planet. I live in Chicago but also spend time in London. When I am with London traders, I notice they are trying to make so many different strategies work in the Forex market, yet I don’t meet anyone who is achieving the success they are in search of. They don’t realize the key factor in trading is proper market timing. Market Timing, the ability to identify market turning points and market moves in advance, before they happen, with a very high degree of accuracy.

It is also the ability to identify where market prices are going to go, before they go there. The main reason you would want to know how to time the markets turning points in advance is to attain the lowest risk, highest reward, and highest probability entry into a position in the market. Think about it, by entering as close to the turn in price as possible, you enjoy three key factors:
 


1) Low Risk: Entering at or close to the turn in price means you are entering a position in the market very close to your protective stop. This allows for maximum position size while not risking more than you are willing to lose. The further you enter the market away from the turn in price, the more you will have to reduce position size to keep risk in line.
 
2) High Reward (profit margin): Similar to number one above, the closer your entry is to the turn in price, the greater your profit margin. The further you enter into the market from the turn in price, the more you are reducing your profit.
 
3) High Probability: Proper Market Timing means knowing where banks and institutions are buying and selling in a market. When you are buying where the major buy orders are in a market, that means you are buying from someone who is selling where the major buy orders are in the market and that is a very novice mistake. When you trade with a novice, the odds of success are stacked in your favor.

So how do we time the markets turning points in advance? It all begins and ends with understanding how to properly quantify real bank and institutional supply and demand in any and all markets. Once you can do that, you are able to identify where supply and demand is most out of balance and this is where price turns. Once price changes direction, where will it move to?

Price moves to and from the price levels with significant buy (demand) and sell (supply) orders in a market. So, again, once you know how to quantify and identify real supply and demand in a market, you can time the markets turning points in advance, with a very high degree of accuracy.

 I sometimes hear people say “I don’t want to try to pick market tops and bottoms, I am only trying to catch the middle of the move.” They are trend followers and say that as if doing that is somehow easier. If price is already moving higher for example and you want to buy, where do you enter, where is your protective stop, what is your risk / reward and so on… The longer we wait to enter, the greater the risk and lower the reward. Another thing I hear people say so often is this: “I wish I knew where the Banks and Institutions were buying and selling.” Every time I hear this I say: “You can see where the smart money is buying and selling, if you know what to look for on a price chart.” It all comes down to supply and demand, just like buying and selling anything else in life.
Sam Seiden

FX - tradinglobal

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