Hi,
Q1. Throughout the different books or articles, banks’ trades are classified as taking profits, closing trades or placing orders. What are the differences between taking profits and closing trades? I feel puzzled as regardless of the purpose, the banks just close their open positions anyway.
Pin Bars Revealed
P.26
“Most, like the one above, form due to the banks taking profits.
These pins, no matter what confluence they have, have a LOW probability of being successful.
Because after they take profits, the banks want price to continue in the same direction.
They don’t want price moving the other way – the direction of the pin. They want price to continue in their direction so they can make more money.”
Q2. Closing trades to take profits, why can the banks still earn more?
Q3. Why the banks would want to take profits earlier (at the pin bar) at less favorable prices?
This is exactly the same puzzle I came across in your article about profit taking supply and demand zones. In these, the banks would close their trades piecemeal and you mentioned they don’t care if the zones are spiked through during closing trades.
Also after several returns the zones are finally broken through, in which case the banks would have closed their positions early and at less favorable prices.
Thanks a lot.
My Response:
Q1: The difference is simple.
When smart money secure profits, they cash-in part of their trading position—just like retail traders moving stops during a trend to lock-in profits. Liquidity also play a key role in when/where SM can secure profits; opposing buyers or sellers must e
When smart money close a trade, their entire position liquidated; no trade remains open.
- Profit taking = position stays open.
- Banks closing = position is removed.
In the case of pin bars, this forms two different pins:
Profit-taking pins—created by profit-taking—have a low chance of success because banks still want the price to continue in the same direction. These pins often form after sharp rises or declines, as that’s when sufficient liquidity (buyers or sellers) is present.
Remember, taking profits requires banks to use the opposite action; e.g., selling if they’re long.
But for banks to sell, what do they need?
BUYERS!
Smart money can only sell if thousands of buyers are present, i.e., after a steep rise in price—that’s why so many low-probability pins form after sharp rises (and declines if banks are short).
As for pins created by banks closing… these are tough to spot.
The only way to find them: Look for massive pins appearing at the end of trends or long movements. These pins signal that banks have closed their positions; hence, the market is unlikely to continue in the current direction.
Q2: I’m not sure what you mean?
Banks take profits to make a profit and decrease risk as the price moves in their expected direction, like I explained earlier.
They only close when there’s no chance to make more money.
Maybe I worded this wrong in the article?
Q3: To secure some profit/reduce risk.
The prices aren’t less favorable because, at that time, no one in the market knows what will happen next—even the banks! In hindsight, we can say: Sure, they could’ve taken profits later.
But at that time, no one knew what price would do next.
Any random event could affect the market.
So taking profits reduces the risk of them losing money.
Response:
Hearing the differences between closing trades and taking profits, I am now clear.
It was just that I was not aware that “closing trades” means closing full position while “taking profits” is just closing partial position .
Thanks for your explanation.
Q2. I wrongly thought banks are “God” and everything is under their control.
From your explanation, they are not. That’s why I was not aware they still have to close part of their position to avoid excessive risk exposure.
Q3 also stemmed from the same misunderstanding.
As an aside, your articles form a good complement to what I learnt from a trader.
He is exceptionally good at using zones + set and forget to achieve not just financial but also personal freedom. However, he didn’t clearly explain why the zones are formed and what zones we can trade on. In Particular, he didn’t explain the key differences between profit-taking and closing trade zones.
This is essential to judge whether a zone can be leveraged for a potential big reversal or is bound to be spiked/passed through.
One commonly used pattern/skill he uses is about what you refer to as the reversal structure + stop hunt. He told me while the reversal structure is forming, there are usually false breaks at the end (you also mentioned this is one of the variations of reversal structure) in order to trigger the stop orders placed by the smart retail traders. They place their trades as the banks.
After the false break the price will move in the banks’ expected direction.
Most of the time, there will be a retest afterwards. While your explanation is that those deceived by the banks’ fake trend have to stop loss, his explanation is the banks incur cost to initiate the false break (form a mini supply or demand zone).
When the price moves past the price where the banks have placed their trades to trigger the false break, the banks have to initiate a retest to return to that price to close their positions to avoid a loss.
Only at the retest point (usually a mini zone has been formed) should we look for a trading opportunity. At this point we check whether stop orders in the reversed trend have been placed previously.
He only looks for two or more consecutive highs/lows that are at more or less the same price. He said single prominent highs/lows are too many and may make us lose focus.
In his theory, the banks want to trigger those stop orders to make a profit. Usually after hitting those stop orders a big reversal will ensue.
By comparison, your explanation makes a lot more sense to me.