Where Do Banks Buy and Sell in The Forex Market?

Asia and London are two Forex trading hot spots on the planet. I live in Chicago but also spend time in both Asia and London. When I am with traders in those parts of the world, I notice they tend to try and make so many different Forex strategies work, yet I meet very few who achieve the success they are in search of. They don’t realize the key factor in trading is proper market timing.

Market timing is the ability to identify market turning points and market moves in advance, with a very high degree of accuracy. In other words, this Forex strategy gives you the ability to identify where market prices are going to go, before they go there. The main reason you want to know how to time the market’s 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 (risk). 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 low and in line.

2) High Reward (profit zone): Similar to number one above, the closer your entry is to the turn in price the greater your profit zone. The further you enter into the market from the turn in price, the more you are reducing your profit zone (and increasing risk).

3) High Probability: Proper Market Timing means knowing where banks and financial 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 against a novice market mind, the odds of success are stacked in your favor. You can either bet with consistently successful banks, or novice market speculators.

So, how do we time the market’s turning points in advance? It all begins and ends with understanding how to properly quantify real bank and financial institution 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 (where banks buy and sell). 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.

While this article focuses on using this as a Forex strategy, everything I am suggesting here applies to any and all markets. To better understand how to do this, let’s take a look at a recent trading opportunity that was identified in our live online trading program, the Extended Learning Track (XLT) utilizing one of our daily services, the Daily Market Overview. The XLT is a two – hour live market income and wealth trading session with our students three to four times a week. During the session, we identified an area of Demand in the AUDUSD (highlighted in yellow). The two lines create a “buy zone”, allowing us to apply our simple rules for entering the entire position. This was an area of Bank Demand for a few reasons.

First, notice the strong initial rally in price from the demand level. Also, notice that price rallies a significant distance before beginning to decline back to the Demand level. These two factors tell us that Demand greatly exceeds Supply at this level, banks are aggressive buyers. The fact that price rallies a significant distance from that level before returning back to the level clearly shows us what our initial profit zone is. These are two of a few “Odds Enhancers” we cover in the live trading sessions. They help us quantify bank dealer desk Supply and Demand in a market which is the key to knowing where the significant buy and sell orders are. The plan with this trade was to buy if and when price declined back to that area of Demand.

This trade was high probability, but how do we know that? Well, being very confident that there is significant Demand at that level, this tells us that we will be buying from a seller who is selling at a price level where Demand exceeds Supply. Selling after a decline in price and at a price level where Demand exceeds Supply is the most novice move a trader can take. Furthermore, these are the two most novice decisions a buyer and seller of anything can make. These are “retail” sellers selling where “banks and institutions” are buying. The retail sellers are selling with the odds stacked against them which means they are stacked in the buyer’s favor, at the demand level.

OTA: May 2016 Daily Market Overview – AUDUSD


As you can see, what happens next is price declines down to our pre-determined Demand level where Banks and XLT members are able to buy from sellers who are selling at “wholesale” (Demand) prices. They are selling after that big decline in price and into that price level where Demand exceeds Supply. So, by changing our mindset to thinking like a bank, which leads to acting like a bank, we can then buy where banks are buying which is opposite of what most traders and investors do; which is exactly what we did when price returned to our Demand level.

Next week we will look at the outcome of this low risk, high reward, high probability trading opportunity.

Until then, have a great day.

This newsletter is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results.