It is a statistical fact that upwards of 90% of retail traders lose money in the Forex market. There are many reasons for this, but perhaps the most important reason is entry. Retail traders often get terrible entries. Even if they are right, their entry may be so poor that their opportunity for profit is not enough to make them consistently profitable. If 90% of retail traders are losing, then that must mean 90% of institutions are profiting. Why is this? What makes institutional traders better than retail traders? Well the main reason why institutional traders are better is because they have access to research that retail traders simply don't have access to. The institutions that employ these traders also employ teams of analysts whose sole responsibility is to analyze the market to ensure the profitability of the institution's traders. However, another very important aspect of their success is that they do NOT wait for confirmation, trend line breaks, patterns, and signals from indicators when trying to enter the market.
Institutional traders look for specific prices to buy and sell at and they place their orders at those levels. In a trending market for example, such as this USDJPY over the last month, institutional traders will be looking to buy dips. They won't be waiting for price to form a low and then enter the market because that would be chasing price... that would be retail. Institutions let the market come to them, they find specific prices that reflect good value for buying given the market condition. You can see on the chart all the points at which major higher lows formed throughout this uptrend. As you can also see those lows in just about every instance match up perfectly with the previously broken high. That is no coincidence.
For a market to form a major swing high in an uptrend, there must be a lot of money selling the market at that price to push it lower. Only institutions have enough buying/selling power to move price and form such a top so if a high is formed it is because it was at a price level where institutions were previously selling. If price then breaks out to the upside and forms new highs, institutional buyers will then look to buy that same price that they previously sold at.
It seems very basic... and that is because it is. Institutional traders only look at price action. Retail traders are the only traders who complicate things by using patterns and indicators and that is precisely why so many of them fail. Keep your charts simple... don't wait for confirmation or signals... let price come to you. Think like an institutional trader now like a retail trader!
@alex.Singletary, How do you explain that some previous lows didnt become highs or the other way round?
UnknownUnicorn261897
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@MakisMooz, It is the major swings... and you'll never be 100% accurate, but you will be much more accurate than most if you stop waiting for confirmation. Also if you have access to institutional technical research you will know the key levels.
JamesPowell
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perfect illustrations of, in this case, old resistance becoming new support. I have asked why a thousand times. Googled the idea as many times. Always asking "why"? Why does this happen. I have found many answers of course but none of them really satisfying or conclusive. Does anyone here have any idea at all "why" price comes back to these levels? If studied pivots, both highs and lows, depending on momentum, usually get re - crossed. This chart is an excellent example. There is a valid reason for it though. I was curious if anyone here has figured out "why" it happens.
Excellent post and excellent example. Good job.
UnknownUnicorn261897
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@JamesPowell, it is simple... it comes down to price, nothing else. Where institutional traders thought a good level to sell often becomes a good level to buy once and visa-versa. Institutional traders look to price action for their analysis and since they have access to order books many buy/sell at specific price levels where they see other orders at.
JamesPowell
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@Unique4xPro, I pretty much agree with you only where you say "it comes down to price, nothing else" I would say it comes down to orders and nothing else. I believe price returns to these levels because of unfilled orders and only because of unfilled orders. I could be wrong and I cant prove it I guess but I suspect the orders on the level two DOM's you mention are mostly retailers and smaller institutions as they are all limit orders. Limit orders cant move the markets as they are pegged at specific prices hence the label "limit" orders. These limit orders are filled with what I would call larger institutions by means of market orders.
Trends are very real and are a must or else no one could make money could they. Us or them.
excellent post and I hope you don't mind I shared it on the supply and demand chat.
GeorgeMendez
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Beautiful, this is exactly what I'm looking at as well
frankenx
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excellent chart and explanation... no wonder why I am not rich yet :( ....
niteshkumar
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amazing analysis total impressed ................................u r vvv great