The Dirty Little Secret Of The Big Banks/market Makers And Why You Keep Losing Money In The Forex Trading Market.
Have you ever been stopped out of a trade and then the market reverses back to your intended direction??
Have you ever entered a trade you were very sure of only for the market to reverse against you with a huge and fast momentum?? I will tell you why.
In the forex trading market, there is something called liquidity. Without liquidity, the market won’t move. But before I talk about liquidity, I will talk about the market makers. And this market makers are also known as SMART MONEY
Who is a Smart Money trader?
Now that we understood each market participant in the forex market, there is another term that we need to learn: smart money. Generally, smart money traders can be defined as the largest market participants whose capital can change the market patterns. Their trading volume is so large that their positions cannot be opened or closed in a single order without apparent price spikes. Smart money includes major investment banks, hedge funds, massive global companies, insurance companies, prop firms, etc.
Based on a survey in 2019, banks dominate the market share of daily forex volumes worldwide. Out of the top 10 institutions on the list, eight of them are banks. US-based JP Morgan leads the market, followed by Swiss’ UBS and XTX Markets to make up the top 3.
Name — Market Share (%)
- US-JP Morgan —10.78%
- Swiss – UBS — 8.13%
- UK – XTX Markets — 7.58%
- Germany – Deutsche Bank — 7.38%
- US – Citi — 5.53%
- UK – HSBC — 5.33%
- US – Jump Trading — 5.23%
- US – Goldman Sachs — 4.62%
- US – State Street — 4.61%
- US – Bank of America — 4.5%
»» Merrill Lynch
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What is Bank Trading Strategy?
The forex bank trading strategy is a method to identify the likeliest price levels for the banks to open and close their positions based on supply and demand areas. The banks control the majority shares of forex daily volumes, so when they move, the market moves.
The Three (3) Key Steps [Forex Trading – Smart Money]
When it comes to forex trading, the banks conduct their activity in three steps i.e. accumulation, manipulation, and distribution/market trend.
Accumulation is the step where banks enter their positions, manipulation is the phase where a false push appears, distribution is the stage where a trend begins.
1. Accumulation
Accumulation is the first step that you must identify in the bank trading strategy. The banks enter the market by accumulating either a long position that they will later sell at a higher price or a short position that they will later buy back at a lower price.
2. Manipulation
Manipulation is the next step after accumulation. This step is characterized by a false push that starts a short-term market trend. Retail traders often fall victim to market manipulation.
They would enter positions when they see there is a potential breakout. But it turns out it is just a false push and the price later moves in the opposite direction.
If you’re ever in this situation, it’s not bad luck. It does not mean the forex market is being unfair to you. Most likely, though, you’re being used by the banks. How so?
Let’s say the banks are trying to enter or accumulate a long position. At the same time, they will also create selling pressures. They will try to ‘manipulate’ retail traders to enter short positions.
3. Distribution or Market Trend
Distribution is the step where we can make profits from the market. At this point, the banks have accumulated their position and created market manipulation.
They are not trying to conceal their presence anymore. Now, banks will try to push the price toward a particular direction, meaning that this is the phase where a market trend begins.
Conclusion
Now you have probably seen some of the reasons you get stopped out as a result of the manipulation. The big banks needs that liquidity so they can manipulate and move the market, so if you can’t spot the liquidity in the forex trading Market, then you are the liquidity, can that’s why you keep losing money.
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