Forex Bank Trading Strategy Revealed
Forex Bank Trading Strategy Explained (Updated 2019)
Questions we will answer:
Who is Smart Money?
What is the Forex Bank Trading Strategy?
Why is tracking Smart Money critical to successful traders?
Step 1: Accumulation
Step 2: Manipulation
Step 3: Market Trend/Distribution
Who Is Smart Money?
Throughout this article, you will read the term ‘smart money.’
I use this term to define the largest market participants; those who move massive volume so large that their position cannot be opened and closed in a single order without spiking the market.
This includes the largest banks, prop firms, massive global companies, insurance companies, Hedge Funds, as well as speculative traders in every variety from around the globe.
It is important to understand that although the banks might control the majority of the daily volume, the VAST majority of that volume is those banks acting as a market maker for the other types of traders mentioned above.
Yes, banks do take speculative positions, but the vast majority of the volume they transact on a daily basis is for the purpose of market making, not speculation.
This is critical information, as it tells us 1 very important clue. If banks are primarily market makers then they will by default drive the market to and from areas of supply and demand which is the foundation in how we track them.
What is the forex bank trading strategy?
Definition: The Forex Bank Trading Strategy is a trading setup designed to identify where large market participants are likely to enter or exit their position based on likely areas of supply and demand.
We term these levels ‘manipulation points’.
As you can see in the chart above, the top 10 banks control well over 60% of the daily forex market volume.
What if you could determine where they were likely buying or selling? Do you think this information would be profitable?
Tracking smart money is at the very foundation of the bank trading strategy. If we can consistently reveal where the smart money is entering, and the direction they are trading, then we have all the information we need to make a profitable trading decision. We must remember that this is the banks market, and not ours!
Retail traders are figurative flies on the wall. Keeping that in mind, why then do most retail forex traders out there attempt to invent or learn to trade forex using strategies that have been created to try and fit a market we do not control?
It is our strong conviction at Day Trading Forex Live that success in the forex market is only possible when we stop trying to fit different rules to a market we don’t control, but rather learn the trading strategy of the banks!
This is their business, and they have a business model (aka forex trading strategy) that we must learn to follow to achieve consistent results! We do this through the repeatable 3 step process described below.
If we learn to trade forex by following their model we will have a much greater chance of success; after all the banks are the ones moving the market!
3 Steps to Success
In any market, there must be a counterpart to every transaction. If you are looking to buy the market someone must be willing to sell to you. Conversely, if you are looking to sell then someone needs to be willing to buy your current position from you.
Knowing that, how can we use this information to track where the smart money is likely to be buying or selling?
As an example, if Bank XYZ desires to buy a large position in the EUR/USD, using the principal discussed above they must find an equal amount of selling pressure.
As their positions are so large, they are always entered over time so as to not reveal their hand. This leads us to the first step in the process, accumulation of a position.
Step #1 – Accumulation: As discussed above there is a counterpart to every transaction in any market. When a bank or group of banks has the desire to enter a position they must do so by accumulating it over time.
Unlike you and I, because of the sheer volume banks push they must enter positions during times most people would term as consolidation or range bound markets.
These periods of consolidation are what we call accumulation as they are areas where smart money enters or ‘accumulates’ their desired position over time.
By doing this through a tight range bound period, banks are able to not only keep what they are accumulating secret to the rest of the market, but they are also able to get a much better average entry. This is the foundation of how the banks enter positions over time.
Money is made by accumulating a long position they will later sell off at a higher price, or accumulating a short position they will later cover at a lower price.
This is one of the most essential keys to trading forex successfully, and yet it is always overlooked or worse yet called consolidation which is viewed as a meaningless range.
Our single goal should be to track when the banks are entering the market and what position they are entering.
As discussed above banks are the ones moving this market, and therefore if you can identify the position they are accumulating, then you can identify which direction the market will move next with a high degree of accuracy.
What comes after this period of accumulation?
Step #2 – Manipulation: Over the last decade of educating traders I’ve heard many forex traders say that it feels as if they are entering the market at exactly the wrong time.
Many traders feel as if the market is just waiting for them to enter before it instantly turns the opposite direction. Not only is that true, but this crucial step we term as ‘market manipulation’ is critical to tracking banking activity in the forex market.
The first point I want to mention is that we use the term ‘market manipulation’ but you could just as accurately be described as a searching for liquidity, a trapping move, stop hunt, etc.
Regardless of the cause, the manipulation or ‘false push’ that comes at the end of the accumulation phase, is the most important factor in tracking smart money.
Bearish: A stop run or false push beyond the high of an accumulation period likely means that smart money has been SELLING into the market, and a short-term trend in that direction is likely to start.
Bullish: A stop run or false push beyond the low of an accumulation period likely means that smart money has been BUYING into the market, and a short-term trend in that direction is likely to start.
Because the mega-banks positions are so large they must essentially create their own market and induce buying pressure they can sell into or selling pressure they can buy into.
How is this short-term manipulation carried out?
REACTIVE VS. PREDICTIVE TRADING STRATEGIES
It starts by understanding that virtually all retail trading strategies are ‘reactive’ in nature.
This means that as the market rises the strategies, software, or EA will begin to produce buy signals/trades, and a falling market will produce sell signals.
I term these as reactive trading strategies as they ‘react’ to the market rather than predict based on what smart money is doing.
Therefore, a rising market will induce buying pressure and a falling market will induce selling pressure.
Do you see how easily smart money could consistently induce large portions of the retail market into buying right before a large drop and selling right before the huge rally?
If the strategies you are trading are reactive (which they all are), then smart money knows how to get you to buy, and they know how to get you to sell. This is precisely why traders so often say they feel like the market “turns against them as soon as they enter.”
The unfortunate part about this is the fact that this information is actually the most powerful thing the banks give us, but only if we open our eyes to it. The short-term manipulation of price tells us what position they have likely been accumulating, and thus, the direction they intend to drive the price.
I urge you to look back at all large market moves. Before the vast majority of large moves, you will see a tight range bound period (accumulation) followed by a false push (manipulation) in the opposite direction of the trend.
Step #3 – Distribution/Market Trend: After they have accumulated a position through a standard tight ranging market, banks will often create a false push we term as market manipulation.
This false push is an extension of the accumulation period as it allows them to finish entering the rest of the position they had been through the previous range.
This, as we just discussed, is the reason so many forex traders enter the market at exactly the wrong time.
If however, we know the tricks they use, we can avoid being a pawn of the bank’s manipulation, and instead profit from it!
If we have correctly identified which direction they have manipulated the market we can then understand which direction they intend to push the price. This is called the distribution phase of the market and is seen visually as a market trend.
Again, this market trend comes only after the banks have finished accumulating their position, often seen as tight range-bound price action ending in a false push/stop hunt/search for liquidity.
Hands down this is the easiest area for us to profit from but only if we can properly identify the first 2 steps in the process.
Throughout this article, I have marked out this 3 step process on a series of charts. New concepts can be hard to understand with only words and therefore I believe the charts should serve you well in the learning process.
As you examine these charts you should be identifying the 3 stages of the bank day trading strategy.
Putting Forex in Perspective
No doubt this trading strategy is very different from anything you have been using. Realizing the chart is a false manipulation of prices and learning to read the intention behind the moves will take practice.
Anything in life that is new takes time to learn and this will be no exception.
If you are using a forex trading strategy used by the masses I strongly urge you to give some serious thought as to why you feel the outcome will be different for you?
At some point, we all need to realize that maybe it’s not the tens of thousands of retail forex traders that are failing, but maybe it’s the strategies that are flawed, as they don’t factor in the largest market participant, smart money!
What do you do next? The first thing I would recommend is evaluating your trading strategy to determine whether it is reactive or predictive.
If the trading strategy you’re using is predictive, then stick with it for at least 6 months to determine if it the right strategy for you.
If you find that like most (95% or more), your strategy is reactive, then you need to move on to something else if you ever want a chance of becoming a successful forex trader.
For those looking to learn to trade the official forex bank trading strategy of DTFL then I would recommend the actual Bank Trading Course that you can access by Clicking Here.
Dear , Sti and Ch
That is the most inteligent aproch to FX market –
To learn the rules of the game , you have to climb on the tower platform
and not through keyhole into door .
Best Regards
Co
THANKS. Verifies what I’ve known for a very long time. As I always say, trading is not rocket science. All sure wins are obvious patterns on the chart. There is a ranging period travelling in a well-defined channel, a retracement to an indicator (your broken line looks like the 21 SMA to me) and a sudden push forward as it breaks through a pivot line. You know it goes a long way when the resistance is broken. If you’re not sure where it’s going to end, employ a S/L to protect a small part of your profit. You can do this when you position yourself well. The worst that can happen is that the fluctuations will hit your S/L but you still exit at a profit. There are other patterns you can employ, but if you exploit this one thing over and over again, it’s not impossible to double your equity over and over, week after week! Ranging to breakout happens in the market ALL THE TIME.
Hey Lila,
Glad to hear you do well with this. Yes “ranging to breakout” does happen all the time…I would re word that as “accumulating to breakout” as someone is accumulating a position through these periods. The key is understand what is being accumulated…and thus which direction you should be looking for the manipulation.
-Sterling
very very useful information…i have started trading not so long ago… been trading using nothing but instinct so far…managed to get some good profit…these couple of days i have been reading the information here and i must say it really makes sense compared to all the other complicated things out there… i am still yet to fully understand this process.. i can recognize these trends, but unfortunately a bit too late…would love it if you can give some insight on how to recognize these effectively… 🙂
-A happy newbie trader who likes what he is seeing on this website –
Hello there! I know this is kind of off topic but
I was wondering which blog platform are you using for this site?
I’m getting fed up of WordPress because I’ve had issues with hackers and I’m looking at alternatives for another platform. I would be great if you could point me in the direction of a good platform.
Hi Olivia
I sent you an email on how to improve your security with wordpress. Our site is a WP platform and since we have improved our security we haven had much problems with hackers. Good luck
Chad
I’m ready to run with the big dogs now .. while the bulls and bears are fighting,I’ll sneak from behind and bite theirs butts.
This makes a lot of sense. You may have mentioned it somewhere, but what time frames were being used for the charts provided? Are there specific ones that the phases should be looked for using? Thanks
Hi Bobby
We use the 15 minute time frame for entries but also look at the hourly charts to build a bias for the day. If its clear we look mainly for signs in that direction otherwise we look for the clear manipulation at the high probability levels we als get from the hourly charts.
Take care
Chad
what moving averages do you apply on charts? and what do they do with regards to your trade confirmations?
It is the 200 EMA (Exponential Moving Average) on the M15 time frame. There is also the 800 EMA showing us where the H1 200ema is on the 15 minute chart.
ok, where to book profits, is there any concept of booking profits ? and similarly when 200 ema breaks above then what we have to do ? sell on every candle high breaks ?
Just watching the course would do you no good. This is why traders fail. Its like learning to fly an airplane by reading a course or learning to do brain surgery by reading a course and watching some videos. When I learned to fly an airplane I had an instructor that spent the first 20 hours of flight time with me before I was able to solo. This is the same in forex. The course is important just as it is in learning to fly, but the most important part was having the instructor sitting in the right seat actually SHOWING me how to do everything. This is the same when learning to trade…you need someone in the “right hand seat” actually teaching you how to do what was taught in the course.
-Sterling
really good article !! very interesting…
how much trades do you usually find per day /week ??
thank you !!
The amount of trades we have each week varies. If you go look under the Recent Trades tab on the site you will find the last 6 months of trading results. Each post has a video for every month. Remember this is on just the EUR/USD and GBP/USD…the strategy can however be traded on all other pairs and in fact other markets as well. Therefore the amount of trades you can get each month can vary wildly based on the amount of pairs you trade.
-Sterling
Any particular time to track the movement?
We only trade from 2-6:30 AM Eastern and 8-12:30 AM Eastern. Since we are looking to track banking activity we want to trade during the most active times when the highest liquidity is being traded.
-Sterling
Look for the first close outside the Asia range on the M15 time frame. Put on 2 lots/minis/micros and take one off at 20 pips, letting the rest run. If the first move was a fake, you nearly always get 20 pips in the fake direction, before price reverses into the intended direction. Same method with 2 lots.
If the initial move was the right one (which sometimes happens), then you get 20 pips + the rest:-).
Happy hunting!
Is this 2 lots in the direction of the first close candle?
Is your strategy suitable for intraday trading
Yes, this is an intra-day trading strategy.
-Sterling
The 3rd chart in this article, the one with the 120 pip downward market trend, shows two boxes labeled “accumulation”. Between those two boxes is a price dip and then the price returns to the accumulation range. The second time it leaves the range it is a price spike and this article labels that as the “manipulation” signal to take a short position. My question is how is the first dip not to be miss-interpreted to be a manipulation that would represent a buy signal? Is there something obvious in the chart I’m missing that I should use to rule that out?
If the retrace is less than a 70% retracement of the previous push then the cycle is still considered valid.
-Sterling
Thanks a lot sir for your magnanimity in this handout. You are one of the few most sincere and great Forex teacher I have came across on the internet in the recent times. The information you provided here is equal to none and we appreciate you for that and remain eternally grateful to you!
Foremost
Thanks for the kind words and I’m glad you enjoyed the article. All the best in your trading!
-Sterling
Greetings sir , Is this still applicable ?
Applicable to what, forex? If so then yes, that is the market we trade. If you have any other questions, feel free to send them via the ‘Contact Us’ page in the main menu.
Sterling
Hello sterling, I need a guide to tutor me in force, am new here
If you’re interested in learning to trade the Bank Trading Strategy that we teach then I would recommend checking out the lifetime membership. I included a link below to the course page if you’d like some more information on what is included.
http://www.daytradingforexlive.com/day-trading-forex-education-course/
Speak for yourself 1st you didnt know that was going to happen 🙂
Haha…Well, technically you are right. There is no such thing as a ‘sure thing’ in trading or knowing ‘for sure’ something is going to happen. Then again, no one is right or knows what the market is going to do at all times which is why we don’t look for perfection, just a statistical edge. All the best!
I believe that I will do that strategy someday and I will master those techniques that I’ve read. Thank you so much in advance, its very helpful and this article has a lot of information. Keep it up.
that’s a very interesting approach, would there be any specific hours for this strategy to work best? I’m guessing European and American banking hours would be the most likely to contain such alterations
Yes Giulio, you’re correct. Being that we’re trying to track smart money we want to be trading when they are as well. I recommend the first 4.5 hours of the European session as well as the first 4.5 hours of the NY Session (2:00 AM to 6:30 AM Eastern & 8:00 AM to 12:30 PM Eastern).
Nice respond in return of this difficulty with firm arguments and explaining the whole
thing on the topic of that.
is the strategy tradeable on the daily timeframe?
When it comes to trading from the Daily timeframe, yes, that is something that can be done.
With that being said, I teach trading from the shorter time frame charts. The daily video I do and all the training will be specific to that.
We do have many members who apply the strategy to other time frames, though. While specific rules might need to be adjusted to the larger time frames, the general principle applies well to whatever time frame someone is trading.
-Sterling
Very educational, nice one for keeping us updated pertaining to your investing success.