Learn To Trade Forex With Smart Money Part 2
In the first article of the series entitled Learn To Trade Forex With Smart Money – Part 1 we talked about how the retail trading sector is setup keep traders losing. We also discussed how this benefits the forex broker, but have you ever considered who else might be benefiting from this business model? You’ll have to think bigger than yourself to answer this question, in fact you’ll need to think bigger than the retail forex market to properly answer the question. Not only do forex brokers benefit from retail forex traders but Smart Money in large part profits as well. How so? This is a question we will answer later in this article, before we get to that let me reiterate the purpose of this series of day trading articles.
The first article should have served as a wake up call for all retail forex traders caught in a “cycle of losses”. It should also have clearly identified the problem forex trading strategies all losing traders tend to use. Within this second article we will discuss who is driving the moves in the forex market. Additionally we will cover the exact model those driving this market use! Think about that for a second. If you can identify when those actually driving this market are getting in then you can essentially take their same trades. The power behind that one fact alone is huge!
Who Really Drives The Forex Market?
In the last article we discussed Smart Money (SM) briefly. To reiterate, SM refers to those who are driving the forex market such as the banks, hedge funds, and/or large trading institutions. Its been said that no one can control the forex market. This is a thought that most new traders are taught in regards to forex. I’d like to present to you a different school of thought, and that is that EVERY move during active trading times is a calculated and manipulated move made by SM. First lets dispels the myth that this market cannot be controlled even by a central bank. For this we will use the recent example of the EUR/CHF. The Swiss National Bank (SNB) said they were going to not allow the EUR/CHF to move below 1.2000 At the time of that announcement the EUR/CHF was around 1.1250 and within 15 minutes the price spiked almost 1,000 pips! If that’s not central bank manipulation and controlling the currency market I don’t know what is.
Considering this we now know the market can be controlled and manipulated completely by outside forces. This was control on a grand scale. If one central bank can move the price almost 1,000 pips then certainly any one of the top 10 mega banks can control a currency for one trading session. This is exactly what we are interested in! Not only are they able to, but they do so every single trading day! Ok so the market is moved daily by SM, but what does that mean to the average retail forex trader? By learning to trade forex with smart money you will be able to duplicate their trades. Plain and simple SM doesn’t lose….therefore we need to understand exactly how SM trades in the forex market to then replicate their trades and achieve similar results! This is where things get fun.
Smart Money’s Forex Trading Strategy
Thinking back to the example we used above, what happened when the SNB started to buy the EUR/CHF? Instantly the price shot up and never looked back. Now this was an extreme example but it does illustrate a key point. Simply put SM cannot just enter the market as you and I can. Because of the sheer volume of currency they move per trade they must accumulate over time. This is where one of the greatest if not thee greatest lies in forex comes to light, that of consolidation. Every forex education course tells you what lie about consolidation? In short all “educators” in the forex market talk of consolidation in a negative light. Forex mentors tell their students to avoid consolidation at all cost, and many even write chapters of their trading education specifically on how to go about doing so. If your unaware as to how SM enters the forex market, then yes it is something you should learn to avoid. However once you learn how SM trades it will become the single most important part of your day trading strategy!
Remember before we talked about how SM needs to enter the market over time to avoid causing massive price spikes? This simple observation will change the way you view the forex market forever! Simply put CONSOLIDATION IS ACCUMULATION! Remember that statement and live by it. If you don’t quite understand the importance of that statement then lets elaborate on the common ground we have already established. We know for a fact smart money needs to get into their position over time correct? Therefore if entering the market takes them time then what would be the best place to get in? You see if they just started buying or selling it would instantly push the market in that direction thus giving away what they were doing. SM never wants the market to know their position until they have fully accumulated their entire position. By concealing their accumulation of buy or sell orders within consolidation they are able to slowly accumulate a massive long or short position over the course of usually an hour or more and the market is none the wiser. Only after they have accumulated their desired position will they then begin to push the price in their direction. This is where the question we mentioned in the beginning paragraph comes in which was who else benefits from losing traders other than forex brokers?
To answer that question and further elaborate on the accumulation period lets cover exactly how this market works. For every buy order to be filled someone has to be willing to sell, and every time someone sells there has to be someone else willing to buy it from them. Therefore the entire idea of the market being oversold or overbought in the traditional sense is a complete fallacy! Considering this fact that there is always a counterpart to every trade lets think again about the accumulation period of SM. They need someone to sell to them if they are accumulating buys and if they are accumulating sells they need someone to be buying from them. Retail traders often times out of ignorance serve to fill the orders of SM. Additionally once SM accumulates their desired position and begin to allow the price to push in their direction who comes jumping on board? Its at this point the market begins to run and every most retail forex traders chase the market all the way only fueling the trade further in SM’s direction. Therefore not only forex brokers but also SM benefit from the average losing retail forex trader.
Riding The Smart Money Train
Most every retail forex trader wants to believe the market is some massively complex engine that takes years and years to understand. I could show them the simple facts I stated above in live markets over and over and they will still dismiss it as to simple. When it really comes down to it the market breaks down into 3 separate phases. Accumulation, manipulation, and finally market trend. Yes there are hundreds of reasons the forex market will move but at the end of the day there is only one way the market is actually able to move the price…..accumulation, manipulation, and finally market trend. No matter what the catalyst for the move the market will follow that pattern because that is the way SM must enter the market due to the sheer volume of their positions. Therefore if you can learn to trade forex by identify when and what SM is accumulating you will never need to learn anything else again, Its that simple! Let me state it another way….if you know which direction SM is going to drive a currency….then does it really matter why? It sure doesn’t to me, and once your learn to identify direction the “why” will not matter to you either:)
In the third and final article in this series on learning to trade with SM we will discuss what more than likely you’ve all been waiting for….the exact rules of the Smart Money forex trading strategy! I hope you all understand the importance of why I prefaced the actual day trading strategy. It’s critical to understand at least the basics of why traditional forex trading techniques will fail you overall. Additionally it is critical to understand the foundation of SM’s currency trading strategy, why SM MUST trade that way, and the truth about consolidation. This is quite simply the very basics of this trading methodology but for now this is all that is needed. As I mentioned previously the next article will FULLY break down how to trade with Smart Money and the exact trading strategy we break down in the forex bank trading course! If you enjoying what your reading and you find it useful then do me one favor and share it! I will see everyone very soon with the exact Smart Money forex trading strategy. Stay tuned!