Where Do Banks Buy and Sell in The Forex Market? Part 2
|Last week we discussed a trading opportunity in the AUDUSD as an illustration to show that if you know what to look for on a price chart, you can see where the smart money is buying and selling in the Forex market, or any other market for that matter. This week, as promised, let’s look at the outcome of this low risk, high reward, high probability trading opportunity.
OTA: May 2016 Daily Market Overview – AUDUSD
Notice that price “declined” (downtrend) to our demand level (the yellow box in the above chart) where we were willing buyers. Every trading book would say we are breaking the most important rules in trading when buying under those circumstances. Well, how many people do you know who read trading books that make consistent low risk trading profits year after year trading? I would be surprised if you knew one, so be careful with what you read.
The trading book version is conventional thinking which most often has you buying high and selling low, so be careful. Don’t take my word for it however, read a trading book and ask yourself how that book is teaching you to enter positions in markets. Is the book version entry and exit into a market the same as how you make money buying and selling anything in life? If there is any difference, good luck trying to make trading profits from the information.
Like anything in life, there is the book version way of learning to do something and the real world way. All we are doing at Online Trading Academy is simply sharing real world trading and investing with you. We are not trying to reinvent the wheel. How you make money buying and selling anything in life is exactly how you make money buying and selling in markets. I learned reality based trading during my time on the trading floor of the Chicago Mercantile Exchange. Trust me, no one on that trading floor was any smarter than anyone else.
Shortly after reaching our demand level, offering a low risk buying opportunity, price rallied for more than a 3:1 gain for those who took the income trade. This is market timing, and while it does not guarantee trading profits on every trade, it does offer the lowest risk entry, highest reward with that entry and highest probability of success. How high your winning percentage is with the strategy depends on your ability to identify key bank and institution supply and demand levels, which means following our simple strategy rules.
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… I want our students to be in the trend as well. I just want them entering at the beginning of the trend, well before the trend is evident to everyone else. 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”. Banks leave crystal clear footprints for those who know how to identify them. It all comes down to supply and demand, just like buying and selling anything else in life.
Hope this was helpful, have a great day.
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