Luckily for those of us that trade the Market Maker Business Model, the way in which Forex works is extremely simple.
I’d like to lay out an example of what I would consider a pretty standard technical trading screen. It was built with free indicators that are widely available, and widely used by Traders across the world.
You can obviously see how easy and intuitive this type of trading is just at first glance…
Not so much. And it isn’t even so much an issue of which ones were used in the example. Frankly whichever indicator is added into the fold or taken out is a moot point. In a world where technical system development runs rampant, screens that take this form often fail to produce results.
Less is More
If you have ever been down the road of system development in trading, this thought is sure to have crossed your mind at some point. There is a tipping point where you are being bombarded with information and can not make a decision that holds any water. This is when the balancing act of removing indicators starts to come into play. God forbid you have access to the calculation settings, because that’s where things start to get really crazy.
It is possible to tweak nearly any screen to give perfect signals on any given day. If the market moved in the exact same way day in and day out this would work exceptionally well. Unfortunately reality stomps on that dream. So close.
So how exactly can you apply the ‘less is more’ to system development in Forex trading? Get rid of every indicator?
No we’re getting somewhere. The issue with standard technical indicators, however many of them are used, is that they mask the simplicity of how the market actually works. Using technical indicators can be great if you are playing a metaphorical baseball game. The only problem is Forex would then be football.
The Market Maker Business Model works in 3 stages:
The moment you add a moving average (or technical indicator) of any type, you have added a mask to this process, as it does not show you when and where money has changed hands. It is based off of price action that will never repeat itself in the exact way for the rest of history.
To conclude, I would encourage anyone looking for the perfect trading setup to research the Market Maker Business Model. If Forex were a casino the Market Maker Business Model is card counting, while everyone else is wearing their lucky socks looking for a machine that ‘speaks to them.’
Director of Education
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This morning during my time slot on FX LIVE! I ran through a market analysis with some of our students in person as well as over the internet. There was so many tactics used by Smart Money here that I thought it would be a great example to delve into a bit more. This is breaking down some of the movements as seen in the GBP/AUD during the current Accumulation phase we are going through.
I will be covering the pink/numbered areas, as those are the key points so far. Turquoise lines represent average price of Accumulation. Red lines/Boxes represent Stop areas or parts of the market that are holding liquidity.
1) This was the beginning of the current Accumulation zone that we are in. Here you can see the market creeping up setting the retail trader into a long mindset.
2) This candle wick is where Smart Money revealed there was positions here that they wanted to protect (for the moment) by driving the market down to this price and collecting some stop orders along the way before the pending rise that followed just after.
3) After the market rose, it was stalled out to begin collecting orders at a higher price. This accumulation area consisted of a snap to the short side to create belief in the retail trader of the pending short move, which did happen, but not before the stop taking through the convenient high that was set as highlighted by #3.
4) Following extremely similar movement to that of the Accumulation that plays out in number 3 (Belief set up long, a snap short through stops, then followed by a Profit Release to the long side), Smart Money revealed another price that they were protecting, resulting in a small Accumulation of orders, and a Profit Release to the short side.
5) Small point to be made about this move, but a point nonetheless. There was a low set right before the move up. After the rotation it came right down to that exact price and began to stall out at what could have been a “support” level which brings me to the next point.
6) This snap to the short side was a heat seeking missile to stop orders. Most of the liquidity present in this Accumulation zone was underneath the range. This became apparent when lows began being taken out, but a small Accumulation took place before pushing out of the range completely. When Smart Money drove the market down to this price it was to clear their negative selection portfolio so they could be in profitable positions for the pending long (AUD Employment Figures came out).
7) As we can see here, the market drove up to stop levels of anyone that was able to profit from the previous short move.
What you can take away from this is Manipulation in the market is the key to understanding what the profit release is going to be. Smart Money will never endanger their own positions. If you wait for the small clues the market presents, and learn the steps involved in money changing hands you can begin to profit from it much more consistently. These things happen on a daily basis and learning the concepts of how they work will ensure you always recognize the signs in time to profit from a coming move.
Keep an eye out for more Market Content Analysis here on FX365I.com in the near future!