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So if you have been poking around our website, or are a student with us, you may be starting to think that the Forex Markets are manipulated…And you would be COMPLETELY RIGHT!

Understanding that Forex Markets are manipulated is the first step. Learning to actually profit from it is a completely different animal. Smart Money (aka the Market Makers) have got an entire playbook of different ways that they can whip a retail trader out of the profit. They can simultaneously use a news announcement to knock out short term traders, using the generated liquidity to move the market completely against the trend and collect stop orders from long term positions several hundred pips away. The list goes on an on in the different ways it can play out.

At the core there is a rather simple process that drives each play: Create a belief; challenge the belief; release profit.

Below is a graphic that FX365I created to illustrate this process in Oct 2013. Beneath it is a screenshot taken of the GBP/AUD on 11/14/2014.

 

The market today basically did the most basic manipulation that is possible. Understand the graphic is explaining a long scenario, today happened to be short though.

To expand further; the market entered into an accumulation phase (The range area whipping back and forth). After accumulating a sufficient amount of orders the Market Makers began their planned manipulation move. By driving the market down they were able to get any stragglers to jump in while also opening up a sizable number of OCO orders. Once the direction was set, they then whipped it the opposite direction to take out the cloud of liquidity found in retail traders stop orders. Once they were able to use this liquidity to fill their own positions, it triggered an automatic reversal from the swap. The market then pushed the direction everyone thought it was going to, except with the retail trader getting stopped out right before it happened.

This happens time and time again. If you do not understand their methods, I would encourage you to look into them as much as possible, as they will lead to truly understanding when and where money changes hands.

Thanks for the read and be sure to subscribe if you’d like more info on their methods!

 

-Shane Guth