The following (paraphrased) excerpts are compiled from two interviews with the same former (stock) market maker as above, but from a couple of months later… Market makers are there to provide liquidity. They’re the ones who buy when nobody else will buy, and they’re the ones who sell when nobody’s willing to sell to you. So, they take an economic risk, but that’s why they make the big bucks. Then, of course, that leads us to order flow. Market makers pay brokerage firms for their order flow. That’s why you can trade for $5 a trade or $2 a trade. It’s because your brokerage firm sells your order flow to a market maker, and those market makers take that flow of buy and sell orders, and they make what we call the spread. They sell at one price, they buy back at another price, and the difference in those two prices is the spread. And they do that on millions of transactions all day, and that’s how they make their money. So, your broker makes money in part from payment for your order flow. Nowadays, machines match those buy and sell orders. But make no mistake, man or machine, whoever gets your orders, their job is to make money off of it while providing liquidity. Now when it comes to the institutional traders, they will want their executing trader (the guy who is actually the mechanic) to buy a stock below the Volume Weighted Average Price (VWAP) or to sell a stock above it. Then there is the retail trader, which I discovered was much, much, much tougher than being a market maker. Nonetheless, the retail trader, can use tools like volume profile to watch the order flow print out visually, can learn structure, can learn to see the market, and if they know the agenda…if the retail trader knows what the agenda of that day is, s/he can use structure to reinforce that, and inventory to confirm that, and what that’s going to do…that’s going to take one’s trading to another level. Your stops are going to be a lot tighter, and your risk management is going to be a lot better, because remember, the best risk management in the world is good trade location. If you have good trade location and inventory is on your side, your trades are going to work quickly. Market profile is amazing because it tells you who you’re trading against, which is 90% of the battle there. Honestly, I only discovered market profile three or four years ago, and being in this business since 1993, to this day I’m still astounded how I can call the top and bottom of a market to the tick. Even with a [?] point range, I’ll know exactly…you’ll look at my Twitter posts and you’ll see…you know, I’ll say, "It’s going here," and it usually goes within a tick or two of that price. And it’s not because I’m some sort of genius. It’s because the market profile is telling me. Look to see where orders are flowing and the nature of those transactions, and the nature of those transactions will tell you what kind of participants are in a market, whether the market is a trending market of a balanced market…it will tell you the structure of the market, which will enable you to take a lot of the stress out of trying to figure out entries and exits. But then, execution was the thing for me. Once I learned these TPO charts (Time Price Opportunity charts), I could call the bottom, I know the target, I know exactly where we are going. But execute? Take the trade? Monitor the trade? And then manage that trade properly? Those are skills that I’m still learning to this day.
What is it about Numerical Price Prediction (NPP) that makes it so effective? Thursday / November 26, 2020 / Thanksgiving Day It’s possible a significant segment of the speculative traders in the Forex market—be they traders at a bank, a hedge fund, a proprietary trading firm, or just the collective actions of many speculative traders who don’t know each other—are interpreting charts and acting in the same way, placing large orders that move the market in a certain direction. For example, this might be done in order to trigger stop-orders that are clustered at a certain level. So, if all these market participants see a recent price top, and they think there are stop-loss orders placed just above this top, then there may be a desire in the market to take out those stops, which would first require buying at market with large size. This means that the participants would end up with long positions, while also driving price up. Then when the market price reaches the stop-loss orders, these are triggered and drive the price up even farther. In this last burst of price moving up, the speculators are selling, exiting their long positions at a profit. The market participants that were previously short and had their stop-loss orders above that level, are now left without their previous short positions in a market that is not really going up, but more likely to move down again. Now, even though "everyone" spots these levels, they will probably all have different opinions on what price will do in relation to them, and they all have their own agendas and needs. For example, say EURUSD is in an uptrend and currently at 1.1980, with an untouched 1.2000 above. Market Participant A believes this level (1.2000) will hold as resistance and price will move down from there, so Market Participant A sells at 1.1980 with a stop loss at 1.2020. Market Participant B believes this level will break, and that when it does, price will spike up sharply because all the people with short positions will have placed their stop losses just above 1.2000, and when they are triggered, the buying pressure will drive price up. So Market Participant B buys some now, and places a stop loss at 1.1960 Market participant C is the Galactic Bank of Mars, and has sold binary options to Spaceship Manufacturer XYZ which wants to protect its export income from unfavorable currency movement. The options contract states that if EURUSD moves above 1.2000 before 5:00 PM, then the Galactic Bank of Mars will have to pay Spaceship Manufacturer XYZ a truck load of money. The proprietary trading desk of the Galactic Bank of Mars is now worried that this will happen, and they estimate it will cost them less to hold price below 1.2000 for a few hours rather than pay the options if price climbs above 1.2000. So, the head trader of the desk tells the guy handling EURUSD that day that he has a budget of X amount of money to spend on holding the EURUSD down by keeping his ask price below 1.1998. On the other hand, Oil Company ABC is looking to buy a large amount of EURUSD. They are aware that their buy orders would move price a lot higher, way above 1.2000, giving them a worse average price. Their treasury guy speaks to their bank’s sales trader, and together they decide that the best strategy is to place limit buy orders a little at a time continuously during the London session priced at 1.1970-1.1980, benefiting from the resistance at 1.2000. These four Forex market participants will now place orders together with everyone else that has an opinion on EURUSD or that needs to pay for export/import, and their collective orders will determine if the level holds or not. This is like a "tug of war" between sell orders and buy orders. At some point, the EURUSD guy on the Galactic Bank of Mars desk sells all he has in budget X to protect the level, and the buyers manage to press the rate above 1.2000. At this stage the Galactic Bank of Mars guy is massively short and wants to get out of at least some of that short position, so he buys. At the same time, all the stop loss orders from everyone else who is short are triggered, plus a bunch of speculators are rushing in to buy, anticipating an up move. Of course, sometimes such levels hold, and sometimes they do not. Now, supposing a given speculator is better than most others at determining what levels will hold, for how long, and how many pips price will bounce before coming back to break the level, that trader should profit handsomely. Nonetheless, these levels are there for everyone to see. They simply act differently in response to them. Based on the above scenario, what seems to be happening to me is that NPP arms me to respond, not to these levels per se, but rather, to the responses at these levels—I am responding to the responses—and NOT to the levels themselves; which like the TPO charts and market profile mentioned by J.J., enables me to take the stress out of trying to figure out entries and exits. But unlike his situation, execution is not a thing with NPP. There is no doubt concerning whether or not to take a given trade. Likewise, there is no debating what to do in terms of managing trades properly. Why this is so is discussed in other threads and is covered in detail in my personal notes. All I wanted to do here was pinpoint for myself exactly what it might be about my system that makes it so effective, and this aim was achieved (if correct) in the previous paragraph. In this sense, I am at an advantage as a retail trader in that I have no agenda. I'm simply going to "go with the flow," which NPP enables me to do quite easily as a nimble little day trader.
How to trade Forex- take $5,000 dollars in small bills, set fire to it. Forex is at best a wet finger in the wind. Pure gambling
You're right—and obviously a leading expert on such matters—perhaps even the world's foremost authority! It is impossible to make money trading Forex with any kind of consistent, day-after-day profitability. It is nothing more than a pure waste of time, probably even worse than gambling, in my humble opinion...
Market makers do just that ... make a market. Not fulfill an order for a single entity, i.e, bank client.
I think he meant dealers. Anyway for OTC trading how we can talk about the market in a classic sense? Price takers, i.e. us will never be able to be dealers and vice versa. We have different goals and functions in this trading.
I have finished the manuscript for a book on Numerical Price Prediction that I plan to publish via Amazon's Kindle Direct Publishing, except that I now wish to include a chapter on Setting Stop Losses. I am therefore revisiting this topic in preparation for carrying out that task... A marketmaker in the Forex market is typically working in the marketmaking department of one of the big banks such as Deutsche, UBS or Goldman. Their task of making a market means that when a client of the bank wants to buy something, the marketmaker sells it to the client. And when the client wants to sell something, the marketmaker buys it from the client. This is traditionally done by the client calling the bank and asking the sales department for a price on, let's say, one billion EURUSD. The salesperson at the bank will, in turn, ask the market maker for a price. The marketmaker will quote a two way price (Bid 1.2010 and Ask 1.2020) which the salesperson relays to the client. Let’s say that the client then tells the salesperson, "I will sell you one billion at 1.2010." In the instant that those words cross the phoneline, the deal is done and legally binding for the bank. The salesperson yells over to the marketmaker that the client sold, and the marketmaker is now left with a long position of one billion. The marketmaker’s open positions are often referred to as inventory. He now needs to manage this inventory, meaning manage his long position, with the goal of exiting at a slightly better price, while balancing this goal against the risk of the market moving against him before he can exit at a good price, which would mean taking a loss. The marketmaker can trade out of the position by trading with other banks, or with other clients. Unlike a speculative trader, who adopts the view that a market will move in a certain direction, and then opens a position in whatever direction he pleases based on his conviction, the marketmaker’s job is to "make a market," which means he has little control over what positions he ends up with. Nonetheless, the marketmaker still needs to have a very good grasp of what the market is likely to do, so that he can adjust his bids, asks, and spreads in a manner that no matter what the client ends up doing, the market maker is likely to profit, and avoid risk. So, if the market is volatile at the moment, the marketmaker may choose to quote a wider bid/ask-spread so that in case the client trades on his quote, the market maker has a better chance of exiting the position at a profit before the market moves against him. The downside of quoting a wider spread is that the client might opt to trade with another bank that quotes a tighter spread. Do understand however that the fact marketmakers are given positions that they are continuously working to get back to flat does not require them to push rates to certain designated levels. Rather, their basic task is to just buy at bid and sell at ask. The ideal conditions for doing this is for the market to just range sideways without anyone pushing it anywhere. All a marketmaker wants to do is just match up buyers and sellers and earn the spread in between, without the market moving. Now, when people talk about so-called "bank traders" pushing the market around in order to reach a certain level, what they are really referring to are traders—be they at a bank, fund, or proprietary trading firm (or just the collective actions of many speculative traders who don’t know each other)—that interpret the charts in the same way and act in the same way (i.e., who place such big orders that the market moves in a certain direction). Indeed, this can be done in order to trigger stop-orders that are clustered at certain levels. So, if every market participant sees a recent price top, and they think there are stop loss orders placed just above this top, then there might be a desire in the market to "take out those stops," which means first buying at market with large size so that you end up with long positions, while also driving price up. Then, when the market price reaches the stop loss orders, these are triggered and drive the price up even further, and it is in this last burst of price moving up that the speculators are selling, exiting their long positions at a profit. Consequently, the market participants that were previously short, and had their stop loss orders above the level, are now left without their previous short positions (having been forced to exit them) in a market that is not really going up (in the long run), but is more likely to move down again. In my experience as a retail Forex trader, in order for me to avoid being among those participants who is forced to exit his positions by this type of "mischievous" activity just before the market is about to reverse direction and move in his favor, I have to set my stop losses about 35 pips beyond the levels that my system identifies as market tops and bottoms.