Have you ever thought about who is participating in the foreign exchange market besides your fellow retail traders? If the answer is no, you should certainly change that. Although we can not have directly an insight into the order books of the large banks, we can identify some of the characteristics of important market participants and use this information in our trading.
In order to try to reconstruct what other traders might do, you have first to have a basic knowledge why the trade, how they trade and other known characteristics. Not all participants in a certain group share the same characteristics, but there a few that most of them do. So who is trading in the FX market?
Price patterns are visual representations of human behavior and occur often and in similar form because human psychology doesn’t change. Every price print, bar, or candlestick is formed because of decisions that have been made by active participants in the market at that point in time. As traders studied charts over time, they noticed certain patterns repeating and have developed strategies to make their own trades based on these patterns.
In today’s markets, many traders use price patterns as entry signals and thus create strong order flow that we, as order flow traders, can use to our advantage. Because our goal is to metagame the participants that use this style of trading, it’s important that we stick to the most popular and widely used patterns. We’ll be looking at the 5 major price action patterns that have found their way into current market lore.
What is an Edge? How can you find one? Where do you start in your search for one? Shall you stop once you found one? How can you readily quantify your edge? And how many edges can the marketplace host at any one time? A trader's edge is what defines his style and ultimately what differentiates his decision-making process from a coin toss. It's his material advantage.
The Swiss National Bank has recently attracted more attention to the Foreign Exchange market than ever before. Once again, at the Order Flow Trading Academy we wish to keep aspiring traders on the right path and away from trends like this. Many traders are attracted to FX because they are told that it's the “most liquid instrument to trade”. In a previous article we touched on the actual issue of liquidity in the FX market – which is being reduced, not augmented. In this article we are going to explore the actual value – if any – of liquidity and what is instead important for trader profitability (big hint: volatility!).
This business can be stressful. This week required us to hold substantial exposure through a troubled geopolitical environment, and I’m not going to lie; it was more difficult than I expected. It’s not the fear of getting caught out. I accept that the associated positions could drop to zero at any second. There are things you just can’t account for and nobody is gonna fault you for taking a hit on a true black swan. What makes it so stressful is the constant need to pay attention. Getting wiped out in a flash crash event is one thing, getting wiped out because you were slacking about when you could have done something to avoid it? Yeah, that’s just unforgivable.