Hi,
I purchased the book, how large institutions operate in the forex market.
Thank you for explaining a different perspective regarding the market. All of the time i was getting onesided story about the market, eg trade with the trend, mark support and resistance and wait for price to get to this level and enter trade when pin bar forms.
My question:
1. For the bank to want to reverse a trend, are they basing their decision on fundamental or technical?
2. What clue can one see to make a decision that the market is about to reverse, such as 123 pattern that everyone is teaching?
3. Also, does weekly support and resistance line provide possible areas where price can reverse?
4. How will one know if there are still bank orders and market likey to retrace upto what level?
5. Is it a bad thing to follow a trend?
6. Do you consider fundamentals on your trading?
Thank you for taking time to review and respond to my question.
Best regards
My Response:
Banks aim to reverse a trend when the profitability of the market continuing its current direction decreases significantly… Remember, banks profit when retail traders are on the losing side.
As a trend extends, more retail traders will trade in the trend’s direction…
Eventually, the banks can’t make more money from the trend because all/most retail traders are entering in the same direction. However, banks have some tricks up their sleeve to prolong a trend. Tactics like consolidations and significant retracements can shake out retail traders and make them trade the other way.
This strategy results in fewer traders moving with the trend, allowing banks to keep making profits.
One strong indicator of an imminent trend reversal is a sharp counter-trend move that breaches the most recent swing high or low in the market.
Check out USD/JPY weekly chart’s uptrend onset for a example of what a counter-trend move looks like.
Weekly or other time-frame support and resistance levels can suggest when a market might reverse. However, it’s best to wait for tangible reversal signs before jumping in to align your trades with the banks’.
It’s impossible to know for certain if there are still bank orders pending. But rest assured, when banks desire a market reversal, they seldom place all their trades at once. Instead, they oscillate the market price to drum up buy or sell orders, enabling them to place any remaining trades.
Your last question is a tricky one…
Following a trend can be a double-edged sword. On one hand, by the time you’ve confidently identified a trend, the trend itself might be gearing up for a shift—either a reversal or a consolidation or retracement phase…
Your best bet?
Always trade in the direction of the most recent high or low on the time-frame you take trades off.
Trading like this means you’ll always be trading with the current momentum instead of counter trend or with the trend.
I don’t currently use fundamentals in my trading but do wish to study them in the future. I don’t believe they’re necessary for profitable trading, but I think they would add an extra bit of confirmation when looking to confirm what is taking place in the market—like when a trend reversal is occurring.
Hope this answers your questions…
Have a great week.
PAN.