Anatomy of big market participants
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    Anatomy of big market participants

    Hi there!

    In this thread we will talk about big market participants – there are a lot of misleading ideas on the Internet. We will break a few of myths here, that might prevent you from real understanding of the market.
    First of all, why after all we need or may need to know destination of big market participant?
    It’s not just because they provide supply and demand, it’s because they provide ongoing supply and demand. If you know somebody that will continuously buy in some period of time (thus supporting market), probably you have an edge, don’t you?

    Historical view

    Probably the first theorist of price action was Rychard Wickoff (his career was developing in the 1900-s), who was first who described laws of market logic. Basic principles of price action were developed by Charles Dow before, but Wyckoff had put them in a frame of a solid theory.
    He claimed that every trend has area of accumulation (when «smart money» players are building their position, having some insider information), then phase of active impulse, then phase of distribution.
    In each phase «Smart Money» interact with «publiс», that is providing liquidity to them. Then «Smart Money» buyer will start distribute his long position selling it to the public.

    Wykoff.jpg

    That is approach called «market logic», and for now everything seems to be almost the same. It is also important to trade in sync with «Smart Money», and avoid being caught with public.

    Markets have become much more complex, than in 1900-s, and it’s not that simple any more.

    Let’s first remember that Wyckoff’s principle were first applied for stock markets where investors were basically purchasing asset to sell it higher later. So, even «Smart Money» were basically speculators there.
    If we are talking about commodity markets (currency is also a commodity), things are somewhat different.


    Commercial traders

    Major businesses need commodities and currencies for their needs outside the marketplace, that’s why here we have so called «commercial traders». In the world of stock investing they are called «value investors», but core difference between stocks and commodities (currencies) that they (commodities) are used by commercial traders on a daily basis (for the sake of the business), every business has necessity of regular purchasing, let’s say, gasoline, while «value investor» can wait for years before he gets good price for making a purchase.

    The second difference between "commercials" and "value investors" is that commercial trader will buy asset on the financial market and distribute it on retail market outside the exchange (in real stores to real customers). So, commercial trader will never distribute his position on financial market, we will only accumulate!

    Commercial traders are real insiders because they operate inside of the business – they know all fundamentals, and they have more resources than large speculators, because they earn their money selling goods directly to millions of customers every day.

    Currency is the most needed commodity in the world – it is operated according to the same principles as any commodity market, being much more complex that any other commodity market at the same time (goals of market participants on currencies are so different that it is barely possible to identify real short-term market sentiment).


    How does it work?


    US commodity regulatory «CFTC» provides to investors weekly reports called COT (Commitment of traders). It indicates weekly change in positions of large speculators and commercial trades.

    Look at the chart below. You see that blue line indicates changes in positions of large commercial buyers, green line – changes in positions of large speculators.
    You see that commercial traders always add to their purchases when prices are low and purchase less when prices are high. Speculators do the opposite.

    TC.jpg

    *information is provided by website timingcharts.com


    You can use COT reports to estimate what positions each groups has - what trend basically you are trading in. Browse the web and you will easily find COT reports – see currency futures there.

    Of course, it’s not that easy to analyze, but it is real fundamental analysis that you can use for your trading. Not all that news and misleading economic indicators.


    Good luck!

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    Last edited by Value trader; 10-24-2014 at 12:23 PM.

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    Rookie martyn's Avatar
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    Wow, the pattern of market movements like this are often seen on many currency pairs. Which is often a problem that we do not know how to determine the accumulation and distribution phases, especially when the process of accumulation and distribution is done in a long time.

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    Certainly the C0T is a very important component of the forex market that can easily help forex traders make accurate market analysis, but unfortunately very few traders know how to use it in trading. Smart money and big market movers are easily indicated by the COT.

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    Quote Originally Posted by martyn View Post
    Wow, the pattern of market movements like this are often seen on many currency pairs. Which is often a problem that we do not know how to determine the accumulation and distribution phases, especially when the process of accumulation and distribution is done in a long time.
    I really do not think that you know what this thread is talking about. It is talking about the flow of the market and how the commercial trading streams makes it own contribution on this. This is actually the way that the market really works, and it is better that you know more of trading very well, than just making the trade itself if you want to be professional..

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    these are good informations and gives an idea about how the market work and i think that each trader can not reach to the level that help him to predict the future movement of the market all the time because the market is in continuous movement and may change his movement at any time and this makes a problem for a lot of traders that do not know how to follow the market for long time

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    Registered user Nizar's Avatar
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    good thread,understanding the constituent of forex market will help us a lot in learning the price actions and why they behave the way we do,and we should also have idea about who is trading with us in this market and who has the ability to move the market big and who is usually the victim of that huge moves,this anatomy is really worth the time we spend in learning it.

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    Bend your view to the charts, not the charts to your view

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    I am very familiar with the indicators that have been used, clearly drawing two currencies force, which fought each other. Visually, it would seem obvious, but according to this explanation. However market movement can be seen from the symptoms and the source can we predicted earlier. It better can be understand how the concept of price movements may occur, and a very good idea to try.

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    This is something new for me to know the anatomy of the big market and in it i see the COT commitment of the trader as they got the indication on weekly bases in order to see the movement in each currency pair and they always buy when the price are less or down and when price are high they sell and thats really interesting to know the anatomy of the big market.

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    Quote Originally Posted by martyn View Post
    Wow, the pattern of market movements like this are often seen on many currency pairs. Which is often a problem that we do not know how to determine the accumulation and distribution phases, especially when the process of accumulation and distribution is done in a long time.
    As you have said, it is not that it has been solved, it is just an information to know how tit is working. This trading liquidity, and the accumulation and distribution that you have said are still all happening, but they should of course be randomly happening as the investors are quoting for tehir trading. No one single approach can know this.

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    COT is very importan Smart money and big market movers are easily indicated by the COT.

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