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Thread: Anatomy of big market participants

  1. #1
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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.

    Attachment 2282

    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.

    Attachment 2284

    *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 11:23 AM.

  2. #1031
    Trader Azis Muslim's Avatar
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    Quote Originally Posted by Leonvic View Post
    Big market participants have the capital which the mere retail traders cannot afford, they can carry out different manipulation as a result of this, sometimes before we can make profits from this market, we have to study the charts to know what we are expecting in terms of what the big players or institutional investors are up to. Trading against their position is not good for us.
    We can not become more than them but we can try to trade like them to follow market trend and use our risk management to limit our trading not using big risk or big lot size in trading. Our focus in this business is not about those big market participants so we simply know the basic knowledge then move along to continue our work with our own trading system. They can do anything with their big money and we can follow them to trade with market by following the trend.

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  3. #1032
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    Big market participants have everything at their disposal which someone that is a simple retailer cannot possess, these folks go directly to the interbank marketplace to do their transaction, this gives them great advantages to even manipulate whatever they feel like, it is we that are the retail traders that near the brunt of all these negative actions, let's not be prey for the sharks. Analysts say that more traders lose due to impatient which is very true.

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  4. #1033
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    Quote Originally Posted by Ehis View Post
    Big market participants have everything at their disposal which someone that is a simple retailer cannot possess, these folks go directly to the interbank marketplace to do their transaction, this gives them great advantages to even manipulate whatever they feel like, it is we that are the retail traders that near the brunt of all these negative actions, let's not be prey for the sharks. Analysts say that more traders lose due to impatient which is very true.
    those fella out there are staying in shadows for decades since the first time this business came out until now, and maybe to the rest of the days in future. we can not precisely act like one of them because we do not have such power of huge money to move market a little. but we can do something valuable in market by using our money to analyze the market by following our logics with our strategy we have been working for so long.

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