3 Trading Lessons From Big Banks
Never! Ever! Trade against the big banks! Ever! You might hear the same advice in your trading circles throughout your Forex trading career and think if EVERYBODY thinks so, then it must be true.
Listen closely (to the voice in your head reading)… You are better off assuming the opposite is true! You are more likely to make money if you go against people’s opinions instead. That’s because banks, 9 times out of 10, trade AGAINST those very same people giving you advice.
Stops (Cash is King)
You may often hear experienced traders say they don’t use a stop-loss, and I want you to know that that shouldn’t encourage you as a beginner to trade without a stop-loss.
Some traders don’t use stop-losses because they understand the area where they might put a SL could be “hunted” by the banks, but they are confident that price will probably end up going in their direction regardless of a stop-hunt.
Where do banks hunt? I hear you ask. Banks hunt stops wherever you would imagine A LOT of stops would be placed.
After the 3rd Trend-line Bounce! After the 61.8 reversal! After a break-out! If you ever see multiple equal highs/lows, I want you to imagine little red riding hood skipping with every retest and the wolf licking its lips behind your entire trading screen because that’s what is happening.
The banks can see all those stops and want that liquidity for themselves. You believe the more touches a support or resistance line has, the stronger it is. This is NOT TRUE!
When they hunt, they don’t even have to break that support/resistance line. All they have to do is create a MASSIVE wick through that support, collect those stops and keep it moving in the intended direction.
YES! It is entirely legal, and it happens all the time. So you can see why some traders might choose not to place stops on specific trades or most of them.
Targets (Keep it while you got it)
When price moves, it’s usually moving towards a destination/target, whether it gets there slowly, quickly, or by going in circles. Price usually has a destination. Don’t miss the station trying to squeeze profits out of the market that are not there for the taking in the first place.
Banks have targets, but these targets won’t be specific like the lines on your chart might be. Say AUD/USD starts to rally (Price goes up) from 0.7300, they wouldn’t be dead set on getting out at 0.7419 or even 0.7688.
The price might signal they are unloading at AROUND 0.7500 or 0.8000. Around these figures, give or take a few pips.
Trade with a destination in mind. So personally, if I see a rally from 0.7300, I’m planning to put on buy positions until 0.7400 or 0.7500, but as price is moving up, I’m not attached to my bias.
I’m aware that markets don’t have to get to their targets, news can come out, plans can change, and I’m mentally prepared to trade in any direction.
Bank Roll (They hatin’)
This 3rd lesson is not so much from big banks but relatively just common sense. By now, you should recognize the influence that banks have in the Forex market.
Suppose you can acknowledge that these institutions have an almost limitless supply of money (because their governments bail them out from time to time). In that case, you can conceive the idea that your account is only a drop in a collective bucket of money.
Nobody is coming to bail you out if you lose money to these big banks. So protect, preserve and serve your capital well! Protect your little drop until you’re able to make it a more significant drop and an even bigger one after that.
But first! Protect your capital at all costs while still learning how to trade. Banks don’t care how silly your mistakes were when losing your money. They will not give it back. Risk small, learn cheap.
Imagine going to a school where the amount of tuition you pay was up to you. Surely you wouldn’t go out of your way to make the course expensive?
Same with trading, you will learn how to trade. How expensive your journey is up to you and you alone.
Keep your risk as small as possible when you start out. You will thank yourself a million times over.
Don’t bet the farm.
Don’t lose your shirt.
Cut the L.
Keep the W.