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YouTube transcript (FkH_84N7QbY) — Transcript

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0:00Morning everybody. How are we all doing?
0:03Morning, who's here? Let's have a look.
0:05Marco, you're the only one here at the
0:06moment. Hopefully other people are going
0:08to join in a minute. How is the
0:10microphone? Can you hear me?
0:13I've changed the microphone settings, so
0:15fingers crossed
0:17it all works.
0:19Where's my chat box? There we go. Chat
0:20box up there. You can hear it, that's
0:22good. Okay, lovely.
0:23We'll just give it a minute just to see
0:26if anybody else is coming in this
0:28morning
0:29and then we will get going.
0:31Let me just quickly share my screen.
0:34Ready to go.
0:38Okay.
0:44Okay.
0:46Yes, [clears throat] so the this morning
0:48we are obviously going to be
0:51the we've got two sessions ideally to
0:53cover this morning. This is actually
0:54quite a long one.
0:56So we might not get through both today,
0:58but we'll see how we go.
1:02Right, it's 9:00. We'll kick off. If
1:04other people come in and obviously
1:07um
1:08we're underway. We'll obviously
1:11deal with that as we go.
1:13There's quite a few members joined now.
1:15So there's quite a lot of people
1:17obviously which I think are going to be
1:18doing a lot of these lessons on the
1:20replays cuz I understand obviously 9:00
1:23in the morning for a lot of people is a
1:25tricky time cuz people are at work.
1:28So I think there's going to be quite a
1:29few people joining
1:31the replays. So
1:33just if you are watching this on replay,
1:36morning Phil Mumble, how we doing?
1:38If you are watching this on replay,
1:40don't forget on every lesson when you're
1:43watching the replay, there is the ask a
1:45question button.
1:47So the whole purpose of this is on
1:48Fridays we're going to do a Q&A session
1:51and I'll be covering any questions
1:52throughout the content of the course. So
1:55if you're watching a replay and you've
1:57got a question that isn't answered at
1:58the end,
1:59uh hit the ask a question button.
2:02So, that is there for you to ask
2:04questions and then you'll get those
2:06answered when the replays happen.
2:09On Fridays.
2:10So, we're going to start off today with
2:12how and why the market moves. So, the
2:15the two lessons we're ideally going to
2:17try and cover today are the how and why
2:19the market moves and expectation versus
2:22reality. This is one that we were meant
2:24to do on Monday.
2:26We didn't manage to get it in.
2:27It's not a very long lesson, so we'll
2:29see how we get on with it. But, this is
2:31the one that I want to cover today cuz
2:32this is the more important one.
2:35So, how and why the markets move is what
2:37we're going to cover first of all. As
2:39you can see in the topics, we're going
2:41to look at who moves the market and how
2:43and an overview of market structure.
2:46We're going to look at supply and
2:47demand, liquidity, order flow dynamics
2:50by the institutions, i.e. how they pump
2:53orders into the market
2:55to make the movements happen. We're
2:57going to look at institutional
2:59participation, different types of orders
3:01that banks and institutions place and
3:03why they are placed.
3:05And then we're going to look at market
3:07making activity. We're going to look at
3:09macro drivers, things that actually
3:11drive the financial market, specifically
3:13Forex. This is more about the news.
3:16Audio's good. Lovely.
3:19Yeah, there's some settings in in
3:21[clears throat] Zoom that apparently are
3:22terrible. They were all turned on by
3:24default. Don't know why, but they were
3:26all crap. Anyway, audio should be good
3:28now.
3:29>> [snorts]
3:30>> We're going to look at the news
3:31catalysts
3:32and how banks and institutions position
3:35themselves into news events.
3:37So, everything that we're going to cover
3:39today is basically
3:41explaining how the candlestick is
3:44formed. Okay? So, one of the most
3:46important things you need to understand
3:48is that you have no control over
3:51candlesticks, over price. It is a moving
3:54object. You are on the train. The train
3:57is going from A to B and you can't get
3:58off. So, we you need to understand where
4:03price is likely to go. And to understand
4:05where it's likely to go, you have to
4:07understand what the bank's motivation is
4:09for getting it to that location. So,
4:12this is very important. It's like the
4:14engine of the market. If you understand
4:16how the cogs turn, it makes more logical
4:19sense for you as to where the
4:21destination is going to be, either up or
4:24down from where price currently is. So,
4:26that's the whole purpose of this lesson.
4:28Give an understanding of how the engine
4:29works within the market.
4:31We're going to look at practical
4:32applications, spotting accumulation
4:34distribution, distinguishing structural
4:37trends from short-term noise, which
4:40we'll look at a little bit, but it's
4:43actually quite difficult. And aligning
4:45entries with the dominant drivers. By
4:48dominant drivers, we mean the market
4:50structure.
4:52So, how to get in
4:54into a market structure move with an
4:57idea of where that market structure move
4:58is likely to go. Okay. So, we'll start
5:01off with who moves the market and how
5:03and a market structure overview. So,
5:04we're going to do this on the charts
5:06here. Let me just Sorry, let me just
5:08quickly turn my phone off. I don't want
5:11that making loads of noise.
5:15Um
5:16while we're doing this. Um not very
5:18professional. Um so, yeah, we're going
5:20to look at charts while we're we're
5:22covering the subjects. So,
5:24this first part here, who moves the
5:26markets and how and market structure
5:28overview, is to do with the
5:32um
5:33way price moves when it's
5:37getting from A to B. Okay? So, my name
5:41is basically online is the market
5:43structure trader. So, that everything
5:44that I do is based around banking
5:46institutional movement, and that creates
5:48structure in the market.
5:50So, what we mean by structure in the
5:52market is the way that price gets to its
5:56destination. So, there is a high there,
5:59there is a low there, and the way that
6:01we got there was by making a high
6:04and then a higher low than that one, and
6:07then a higher high than that one, and
6:10then a higher low than that one, a
6:12higher high than that one, a higher low
6:15than that one, but then we made a lower
6:17high than that one, and a lower low than
6:20that one. And then we kind of went into
6:22an accumulation, and then we finally got
6:23to our destination. So, market structure
6:26in its simplest form is basically a
6:30a formation of higher highs and higher
6:33lows, which causes a trend. Okay? So,
6:36the way that this movement happens
6:39is not by chance or or coincidence. It's
6:43the mechanics of how banks and
6:44institutions execute orders, which
6:47causes this market structure to appear
6:50like this. So, the reason this appears
6:53as market structure is because banks and
6:55institutions have millions and trillions
6:59of orders every day to execute in the
7:02markets. So, on average it's estimated
7:04in the forex markets, there's around
7:06about 7 to 10 trillion dollars worth of
7:09exchanges happen between currencies,
7:12which is absolutely huge. Now, for any
7:15kind of price movement on a candlestick,
7:19so, if we quickly go and zoom in and
7:21look at a candlestick,
7:23for this candlestick here to move from
7:27there to there,
7:29we have to have somebody that wants to
7:31buy
7:32the pound and sell the US dollar, and
7:35someone that wants to sell the US dollar
7:37and buy and do it the opposite way
7:38around, basically. So, you need a buyer
7:40and a seller, yeah?
7:41For a tick to happen, we need someone to
7:45want to be
7:46selling and buying at different prices.
7:49Where there's a gap in the middle, which
7:51is what we call the spread,
7:53you're going to find that this person
7:55here wants to buy at this price, and
7:57this person here wants to sell at this
7:58price.
7:59They are never going to transact if they
8:01stay there, because for that person to
8:04sell at that price, somebody that wants
8:06to buy at this price has to move up to
8:08that level to take that order. Or that
8:11person there has to move down to that
8:13level to take that order. That's what we
8:14call a tick.
8:16So, banks and institutions are
8:17constantly executing thousands and
8:19thousands and thousands of individual
8:21orders, and that's why you see the
8:23market ticking up and ticking down.
8:26The reason a candlestick is formed is
8:28because banks and institutions have a
8:30higher weight or distribution of sell
8:32orders than buy orders. So, let me give
8:35you an example of the main players.
8:38So, for example, we've got Barclays.
8:41And we have HSBC.
8:44And we have Citibank.
8:46Yeah.
8:48Um so, those are three main players in
8:51the market. Banks and institutions are
8:53basically anybody large enough uh to
8:57move the market with high volumes of
8:59orders, okay?
9:01So, we just take these three as an as an
9:02example. So, if Barclays, for example,
9:04today on the pound US dollar
9:07have to sell 200 million
9:10uh
9:12US dollar and convert it into pounds,
9:14for example.
9:16HSBC have 100 million that they have to
9:20sell. And Citibank want to buy
9:2350 million.
9:25Okay? There is a differential there of
9:28250
9:30million orders short that have to be
9:33executed in the market. Now, the banks
9:36and institutions can't just dump all of
9:38their orders at one price point because
9:41there will not be enough buyers at that
9:43price level to execute all of those
9:45orders. So, as they move the orders
9:49through the system, they do that in
9:51small chunks. So, they might split this
9:53250 million in total here up into
9:5610,000,
9:5820,000, 50,000 chunks.
10:00And they will sit at a price point with
10:01that order and wait for someone to come
10:03along and take it away from them. If
10:05they wait long enough and no one comes
10:07along, they will offer that order at a
10:09lower price. Tick down, okay? And this
10:12is basically how markets work. A market
10:15is basically two participants wanting to
10:17exchange what they have, okay?
10:20So, if there is a massive differential
10:22today, for example, of 250 million short
10:26because there's only 50 million buyers,
10:28what the markets and the banks will have
10:30to do is move the price down until they
10:32can get those orders completed. So, if
10:35if buyers sitting down here happily
10:37waiting to buy and the banks and
10:38institutions are sitting up here,
10:41nothing's going to happen. So, they will
10:43move the market to where the orders
10:46sitting. And this is why you get price
10:47action. And it's all to do literally
10:49[clears throat] with the balance of
10:50orders long and short today.
10:53So, if we got 100 million long and 100
10:55million short and that is executed over
10:57a period of 1 hour, what will we get? A
11:00candlestick that looks like that.
11:02Yeah? Because we will move up and down
11:04and we'll execute all those orders, but
11:05we won't go anywhere because there's
11:07equilibrium in price. 100 million long,
11:10100 million short, no movement. If we
11:13have 500 million short and 10 million
11:15long, that thing's coming down hard
11:17today. You're going to hit the average
11:19daily range and probably go beyond it
11:20because there's a big weight of orders
11:22going short, okay? And this is all could
11:25all executed on a daily basis by banks
11:28and institutions.
11:29The orders they have to place every day
11:32are completely random.
11:34So, when a bank or an a banker basically
11:37gets into his office in the morning at
11:38say 8:00, what he will find on his desk,
11:41which is not really stacks of paper
11:43anymore, it used to be, um is a whacking
11:46great list of orders from all of his
11:48corporate clients saying that I need to
11:51change 200 million pound into US dollar
11:54today because I as Microsoft am buying a
11:57load of stuff uh from the UK or from the
12:01US and I need to transaction done. So,
12:03that bank's job then is to execute that
12:06financial transaction for Microsoft by
12:08exchanging that currency and they will
12:10take a commission from that. Okay, so
12:12his job as the bank is to basically get
12:16that 200 million or whatever that order
12:18is for Microsoft executed at the best
12:21possible price.
12:23Microsoft will be happy if he can get it
12:25done quickly. If he can get a decent
12:27price, Microsoft will be double happy.
12:29Whatever price he gets, the bank gets a
12:32commission. So, the bank doesn't really
12:34care where that's executed. They have
12:37restrictions and they want to execute
12:39within certain levels, but his job is
12:42literally to press buttons to get that
12:44order done. So, a lot of banking uh
12:47orders are executed as what we call OTC
12:50transactions, over-the-counter, which
12:52means that Barclays phone up HSBC and
12:54say I've got 100 million long on pound
12:57US dollar, can you take the opposite
12:58side? And they go, "I can take 60 of
13:01it." And I go, "Fine, I'll take the 60
13:02and I'll put the 40 through the open
13:04market." So, you don't actually see
13:07everything that hits the open market.
13:10Um you just see or everything that hits
13:11the market in total, you just see what
13:13gets put through brokerages, market
13:15maker desks with banks and institutions.
13:18So, that's basically the mechanics of
13:20what is going on under the hood. It's
13:23astronomical numbers that we can't
13:25fathom and we have absolutely no impact
13:29on a candlestick. If everybody ever
13:32watching this video ever over the
13:34history of 100 years was to press the
13:37button at the same time and execute one
13:39contract long on the pound versus
13:40dollar, it wouldn't even notice it
13:42because we don't have enough funds to
13:44make this thing move up and down.
13:47Okay? So, that's basically what's going
13:49on in banks. So, they are literally
13:51executing orders on behalf of their
13:54customers and on behalf of themselves to
13:57drive price to points where they want
14:00things executed, okay? And their job is
14:02to just to get that business done. Our
14:04job is to ride that bank movement up and
14:08down and identify how they're executing
14:11orders. Now, obviously because they
14:13can't execute all their orders in one
14:15go, they execute them in batches. And
14:17this is why market structure exists
14:20because if a bank has to over a period
14:23of a multiple days or weeks or hours
14:26move price from A to B because it needs
14:29orders executed in that direction for
14:32multiple days on the trot, they'll
14:34execute part of the order, wait for a
14:36better price, execute part of the order,
14:38wait for a better price, execute part of
14:40the order, wait for a better price, and
14:42so on and so forth until there is no
14:45more demand
14:47to sell to them or they do not have to
14:50buy anymore. That's it, okay? So, what
14:53we do as traders is we identify how
14:56banks are moving, which is basically
14:58using market structure. And we try and
15:01anticipate their next moves.
15:04So, that's basically who moves the
15:06market and how they move it. So, large
15:09orders by banks and institutions all
15:11done in small batches. There are also
15:13different types of orders. So, the three
15:16There's There's a couple of different
15:17types of orders banks have. So, you've
15:19got commercial orders
15:21which are uh orders which are basically
15:24given to them by large corporates to
15:26execute. So, like the Microsoft example
15:29I gave.
15:30Microsoft say I've got to execute this
15:32order, and they will execute that order,
15:33and they will be paid a commission on
15:34it. There are speculative orders,
15:38which are placed by the banks
15:39themselves, and these orders are
15:41designed to make the bank money. So,
15:44there will be an FX desk in all the
15:46banks out there and all the major
15:47institutions, and their job is to
15:49forecast where price movement is going,
15:53and make money. So, in the same way as
15:55we do, we will buy the pound US dollar
15:57in the hope that it rises, and then we
15:59will sell it for a profit. Those are the
16:01speculative desks within banks and
16:03institutions. Their job is to make
16:05money, so their trades are short-term.
16:08They are put on and taken off.
16:11Okay? So, they buy it, and they sell it
16:14to make profit. Commercial orders are
16:17one-way transactions. They get executed
16:20once, and they're done. So, Microsoft
16:22wants to buy 200 million pound US
16:25dollar, they execute that order over
16:27however many hours, minutes, days,
16:29weeks, months it takes to execute the
16:31order, and it's done. So, it's constant
16:33one direction.
16:35This is two direction. We buy it, and we
16:37sell it to make a profit. Then you've
16:39got the market maker desks, and their
16:41job is to basically provide liquidity at
16:43different price points. Those
16:45transactions are two-way transactions.
16:48Okay? So, those basically will tend to
16:50be more like your accumulative
16:53trades, where they will quickly buy
16:55some, quickly sell some. And their job
16:56is not to make money, it's not to
16:59execute commercial orders, it's to
17:01generate volume of orders in the market,
17:04so that the market can trade. Yeah? So,
17:07if you've got a buyer and a seller, and
17:10neither of them are going to budge, the
17:11market makers will move the price to a
17:14point where they can sell it, and they
17:16have the volume to drive the price back
17:18down to where they want it to so that
17:21there is no cost to the bank. Yeah.
17:24Market maker desks in banks tends to
17:25talk to each other. So, their job is
17:28basically to make sure there's no
17:29profit, no loss, but there is execution.
17:31They got to get the job done, basically,
17:33which is at the end of the day what
17:34banks are there for, to make money and
17:36to do the job for you. Yeah. So, that's
17:39basically market movement.
17:41Cogs in the wheel, basically.
17:43The main point to take away from this is
17:46it doesn't matter what you think price
17:49is going to do on any single
17:51candlestick. It's completely out of your
17:54control. If a candlestick went up in the
17:57last hour, it's got absolutely nothing
17:59to do with the direction of the next
18:01candlestick. If that candlestick went
18:03up, it went up because there was a
18:04distribution of orders long, which were
18:07higher than the distribution of orders
18:09short.
18:10Therefore, we have an imbalance and we
18:12move.
18:13If the next candlestick has 100 million
18:16long and 100 million short, it won't
18:18move. It's got nothing to do with what
18:19happened in the last hour cuz this hour
18:21is a different batch of orders. It's a
18:23different volume coming through. There's
18:25different banks and institutions
18:27involved, okay? So, every candlestick
18:29you see is unique in the fact that it
18:32can paint whatever it wants to paint and
18:34it has no dependency on the previous
18:36candlestick.
18:38Supply, demand, liquidity, and order
18:40flow dynamics by institutions. We kind
18:42of covered this little bit. So, supply
18:44and demand basically is
18:47areas where
18:49we know there is a large volume of
18:52orders available to us. So, with banks
18:55and institutions, uh when they need to
18:57execute orders, they will try to target
19:00an area they know that they can get
19:01orders executed at. And that tends to be
19:04where price has been before. So, supply
19:07and demand is kind of
19:10the same thing as support and
19:12resistance, okay? It's just an area of
19:15price where we've had activity which
19:18tends to have changed direction. The
19:20reason is is because there is a larger
19:22supply
19:23or at one level than there is of a
19:25demand. And if that is still the case
19:29when you get back there, you tend to
19:30find the market reacts. So, price gets
19:32pushed back into those areas.
19:35Propulsion gaps are also supply and
19:38demand areas. These are footprints left
19:41by the banks and institutions to tell
19:43you where the price where the sellers
19:46basically are in the market. So, where
19:48the suppliers is. It's in this area.
19:50It's in this area. When you get through
19:52it, it becomes the opposite. Yeah.
19:54Support and resistance. That's all the
19:56market ever does. These propulsion gaps
19:59are large bank orders. So, this is where
20:01we've got a large volume of orders
20:03flowing through the market and there was
20:05a continual supply of people in the
20:07opposite direction buying it, which
20:09meant the market could continuously push
20:12through. However, the speed it went
20:14through means that there is what's
20:16called an imbalance or an inefficiency
20:19in the market, meaning that there are a
20:21lot of people that are left on the
20:23opposite side. And when I say people, I
20:25mean banks and institutions. They will
20:27be able to drive the price back into
20:29these areas to balance their books. So,
20:31supply and demand and
20:34kind of
20:35it's zones, if you like, uh that are
20:38where banks and institutions basically
20:40been before. So, liquidity this is to do
20:44with kind of the stop run mentality. So,
20:46anybody that knows of
20:49uh obviously the smart money concepts.
20:52It's the stop run mentality. Yeah. So,
20:55people uh call these stop runs. It's not
20:57a stop run. They're not running stops.
20:59Banks and institutions don't have stops.
21:01Yeah. We do, but we don't have enough to
21:04drive price all the way up there. Yeah.
21:06So, it's basically an area of liquidity
21:09where we know there is a large iceberg
21:12order, if you like, or a large batch of
21:14orders that are selling. This is a
21:17previous short bank order. We got to it,
21:20and they added more size because this is
21:22an area that they are interested in
21:23selling at for either commercial reasons
21:26or speculative reasons, yeah. So, they
21:28will do the same thing over and over and
21:30over and over again. This is why supply
21:32and demand works, basically. If you have
21:35enough
21:37supply of sell orders at a specific
21:39price point, it will continue to do the
21:42thing which is the easiest. Yeah, don't
21:44forget banks and institutions' job is to
21:46execute orders. If they can execute
21:48orders there easily, they will execute
21:50them again there. If people keep coming
21:51back there, they will just keep going,
21:53"Yeah, that's fine. We've got tons of
21:54this stuff. You can have it." And it
21:56will keep doing the same thing over and
21:58over and over again. Same in these
21:59propulsion gaps. Bring me back to the
22:01propulsion gap. I will keep selling it.
22:03I sold it here. If you come back to me,
22:05I will keep selling this thing until you
22:07go away because I've got a billion
22:09short, and you haven't.
22:11Yeah? This is why they work, yeah? So,
22:13it's footprints is what we're looking
22:15for.
22:17Um
22:18Uh order flow dynamics, I've kind of
22:20covered that, which is basically the
22:22flow of orders in and out of the market.
22:24So, it's all to do with balance,
22:26basically. It's to do with bank and
22:29institutional ease. If somebody in a
22:31bank walks in in the morning and goes,
22:33"I've got 200 million executions long on
22:36the pound US dollar. Have you got 200
22:38million short executions?" Yes, I have.
22:40"What price do you need?" I need this
22:42price. "Okay, I need this price." Tell
22:44you what, let's bounce it up and down
22:45all day between these prices and get our
22:47job done. That's basically what goes on
22:49in banks. They're not interested in
22:52taking your money with stop losses or
22:55hunting you or doing it. You don't even
22:57exist as far as they're concerned. What
22:59they're interested in is doing their
23:01job. And by doing their job, they have
23:04to batch it into small orders, which
23:06creates structure in the market that we
23:08can see over and over again. Market
23:10structure
23:12is the higher high
23:15and higher Well, it's probably easier to
23:17actually draw it on the chart, isn't it,
23:19than write it. Um is the higher high,
23:22higher low. So, there's a low, that high
23:25that low is higher than that low, that
23:27high is higher than that high, etc.,
23:29etc. So, the market structure is created
23:32by the execution long finding a price
23:34and taking profit on it. Execution long
23:37finding a price taking profit on it.
23:39Over and over and over and over again.
23:40You can go back in time on any top chart
23:43any time frame. Markets are fractal. It
23:45doesn't matter what time frame you look
23:46at. Market structure is always going to
23:48be there. It's the same everywhere.
23:51High,
23:52low,
23:53lower high, lower low, double top, still
23:56market structure.
23:58Yeah.
23:59Higher low,
24:01lower high,
24:02higher low, symmetrical triangle. We're
24:05going to cover patterns later on in the
24:07course, but all market structure is is
24:10the way that market moves up and down.
24:13So, your job as a trader really, every
24:15time you press the button here, is to
24:17make a simple decision.
24:19Where I am here, am I expecting a lower
24:22high
24:23or am I expecting a higher high?
24:26So, am I a buyer
24:28here or am I a seller here? That is your
24:32job. Market is binary. One of two things
24:35is going to happen. It's going to move
24:36up or it's going to move down, and that
24:38is all it can do. And it will move up
24:40and down dependent on banking
24:41institutional movement over the next X
24:43periods. Problem is, we don't know what
24:46the banking institutional movement over
24:47the next periods is, and we never will
24:50do because they don't because they don't
24:51know every day what is going to arrive
24:53on the desks, okay? Which is why I say
24:55the markets are random. There is no way
24:57to predict the future. There is no way
24:59as good as you are at reading market
25:01structure and saying this is definitely
25:03a
25:04higher low and we're going higher. This
25:07thing will either go there or there.
25:09Whatever you think is irrelevant. What
25:11will happen will happen. Your job is to
25:13wrap risk around price movement.
25:16Covering.
25:17So,
25:19institutional participation order types
25:21and market making activity. I've already
25:22covered that. Macro drivers, rates,
25:24inflation, growth and risk sentiment.
25:27So,
25:28the other thing that drives the market
25:30as we know is news. Okay? So, it's
25:32incredibly important that we keep on top
25:35of what is going on with news. I'm going
25:37to use the Australian dollar here as an
25:39example. When there is a shift in
25:43sentiment, i.e.
25:46an interest rate decision is higher than
25:48anticipated or an inflation number is
25:50higher than anticipated, that will cause
25:53banking and institutional movement to
25:55switch direction or to retain direction
25:59and accelerate faster in that direction.
26:02Okay? So, fundamentals obviously drive
26:04the market. We're going to cover
26:06fundamentals in more detail.
26:08But, these are things which will change
26:11direction in trend, which is why trend
26:14trading is so difficult to do. Because
26:17if you see a structure in the market
26:20that looks obvious and the banks are
26:23obviously just executing long orders,
26:25taking profits, executing, taking
26:27profits and doing the same thing, there
26:29will be at some point a piece of news
26:32which means that there is no more reason
26:35for commercial businesses to be buying
26:38the Australian dollar against New
26:39Zealand dollar and there is now a reason
26:41for them to sell all their Australian
26:43holdings. So, a business in Australia
26:46that also trades in New Zealand will
26:48have the majority of their capital
26:50where they're going to earn the best
26:52interest or where the biggest growth is
26:54going to be. When there is a news event
26:56that drives that the opposite direction,
26:59the banks and institutions will receive
27:01orders from these commercials to say uh
27:04we want to convert all our AUD over to
27:05New Zealand now. Okay, no problem. How
27:08long do you think it will take?
27:09Somewhere about 6 weeks. No problem,
27:11execute it for me. And then you're going
27:13to change trend direction. Which is why
27:15people find trend trading so incredibly
27:18difficult because by the time you've
27:19identified a trend and you go, "Yeah,
27:22this is basically where I want to be
27:24getting into this trend." The trend
27:25changes direction.
27:27Fundamentals mean that we don't want to
27:29go that way anymore.
27:30Okay? So, you've got to be aware of
27:32what's going on with the fundamentals,
27:34but the fundamentals again are not
27:36foreseeable. Now, banks and institutions
27:39will pre-empt movement. So, this is why
27:42we pay so much attention to our
27:44fundamentals. So, the economic calendar,
27:47for example.
27:48The purchasing managers index is
27:51basically the
27:54diffusion index, if you like, of what
27:56purchasing managers in large businesses
27:59have been doing. If they have been
28:01spending a lot, it means that there is a
28:03demand for the product, which means that
28:06they can charge more for it,
28:09which means that the consumer price
28:11index, CPI, which is what the purchasing
28:14managers index feeds into, is likely to
28:16go up. When the consumer price index
28:19goes up, banks and institutions, or
28:21banks rather, need to control that with
28:23inflation. Yeah? So, they will change
28:25the inflation figure and make it higher.
28:27Uh sorry, they change the interest rate
28:29and make it higher. Yeah? All these
28:31things will go into driving uh prices.
28:35So,
28:36if
28:37PMIs are higher, CPIs will likely be
28:40higher, interest rates are likely to go
28:42up. Banks and institutions will forecast
28:45that and they will start to buy that
28:48currency before the event happens. So,
28:51there is a great example of an
28:53Australian news event that caused a
28:55massive spike in bullish sentiment in
28:57the Australian dollar, but the banks and
29:00institutions were forecasting that to
29:02happen weeks before the actual news
29:04event. So, you will find that somewhere
29:07in the region of 4 to 6 weeks often
29:09before a major news release,
29:12mainly interest rates, the banks and
29:14institutions will start to execute moves
29:17in that direction. Yeah. But, they will
29:19also get it wrong a lot of the time,
29:21which means that when they have scaled
29:23in long and the news event doesn't come
29:26out as what they were expecting, you get
29:28the inverse effect, and then you start
29:31to come back because you need to undo
29:33that move you put in. Okay? So, all of
29:36this is kind of
29:38information you need to know,
29:41but not information that you have any
29:43control over. But, when you see things
29:45happening
29:46and you see systems, strategies, and
29:49people talking about I'm buying this
29:50because this is going to happen in the
29:52future, you'll know that they know
29:53nothing about what's going to happen in
29:54the future unless they've got a crystal
29:56ball. It's important you understand that
29:58there isn't something out there that can
30:00predict future price movement. Yeah. It
30:02doesn't exist. It's a time machine. So,
30:04all you can do is look at the footprints
30:06of banks and institutions have left in
30:08the past
30:09and use those as areas to target. Yeah.
30:13Uh but, to
30:14you need to understand how these are
30:17formed. So, why these highs are formed
30:19and why price reacts at these highs.
30:22Yeah. Uh and why these propulsion gaps
30:24are formed and why price comes back to
30:27the propulsion gaps. Okay?
30:28So, it's all to do with understanding
30:30the mechanics of market movement.
30:33Um
30:36Sorry. Uh for some reason, I don't seem
30:38to be able to
30:41do my browser.
30:42Give me a sec.
30:44Okay.
30:45um
30:47Okay. So, uh that's basically the market
30:49structure side of things. Oh, wrong one.
30:53Um and news catalysts. So,
30:56spotting accumulation distribution.
31:00So, this is basically what we call a
31:03range. Yeah. It's another word for what
31:05the banks and institutions call balance,
31:07equilibrium. So, accumulation is where
31:11we basically go sideways. And what this
31:14is is equilibrium in the banks. So, it's
31:16a price zone
31:18that the banks and institutions have
31:20discovered between them that they can
31:23get their business done. It's an
31:24execution area. And what will happen is
31:28after they have accumulated
31:30uh
31:31enough orders from the speculated
31:34speculative desks to make a move, they
31:37will do.
31:38When they've completed all their
31:40commercial orders at a price point that
31:42those commercial orders want to be
31:44executed, they will move the market,
31:46okay? So, what tends to happen is the
31:48market will move in
31:50two ways. It is either trending
31:54with market structure
31:56or it is ranging or accumulating.
32:00Yeah. And this is equilibrium. So,
32:01remember the way that banks and
32:03institutions execute orders. 200 million
32:06orders short, 200 million orders long.
32:08If those two banks can speak to each
32:10other for days or weeks or months on end
32:13and just keep executing the same amount
32:15of orders over and over and over again,
32:17price will not move. Yeah. There is a
32:20equilibrium or balance as they're called
32:22in banks. Uh a balanced area where price
32:26can
32:27be done. Business can be done. Executed
32:30orders.
32:31If there is
32:33an overwhelming sentiment from all
32:35participants to
32:38drive prices up or buying more of
32:41something because it's more profitable,
32:43you will get a trend. But during those
32:46trends, you will find times of balance
32:48where there will be uncertainty as to
32:50whether or not we can try and go higher
32:53or try and go lower and we will sit
32:55around. So, those are good accumulation
32:57points where you will tend to buy
32:59breakouts.
33:01So, in this trend here we can see on the
33:03Aussie New Zealand, we have a low, a
33:06high,
33:07a higher low market structure,
33:10and an accumulation
33:12before creating
33:14a higher high,
33:16a higher low,
33:18and an accumulation
33:20before creating a higher high, which
33:22actually continues up to there, and then
33:23a higher low.
33:25We didn't do an accumulation, we just
33:27went straight for a higher high because
33:29we had multiple news events which drove
33:31the market in that direction. Sentiment
33:33changed into a parabolic sort of trend,
33:36okay? So,
33:39there are there is never going to be a
33:41same market structure twice. When you
33:43look at any particular chart, you'll
33:46always find market structure takes many
33:48different forms.
33:50Yeah? It's never the same
33:53twice. You're going to find it always
33:55going to have slightly different
33:58tweaks to it if you like, where it's
34:00going to constantly be evolving, which
34:03makes it very, very difficult to read
34:05because there isn't ever going to be the
34:07same trend twice. Fibonacci's a great
34:10thing to use for market structure
34:12because when you've moved down and you
34:15can see the market pushing back up, if a
34:18new market structure low is going to
34:19form, it has to form a lower high
34:22somewhere and that tends to be one of
34:24those Fibonacci ratios. You never know
34:27which it's going to be, but it's going
34:28to be somewhere in there. You're going
34:29to form that lower high before you make
34:32the lower low, yeah? But, you will never
34:34be able to pick the exact price point.
34:37This is why position trading works so
34:39well, because you don't have to pick the
34:40right price point.
34:43So, spotting accumulation distribution
34:45tends to be happening
34:47uh when the there has been a move. So,
34:49the market will move and then it will go
34:52into an accumulation period. It's not
34:54very good example.
34:58Easier to spot. So,
35:00you can see you got the uh the movement
35:02there up. There is your accumulation.
35:06Distribution of orders. So, we've
35:07accumulated orders. We're now
35:09distributing those orders to a higher
35:10price point and then we're going to sit
35:12and we're going to accumulate again. And
35:14then we're going to push to a new price
35:16point. This time we just did normal
35:18market structure movement and then we
35:19went into an accumulation.
35:21An attempted higher high, which was a
35:23false breakout, failed because there
35:26were not enough sellers up there for the
35:28buyers. So, they had to move the price
35:30down. So, we made a new lower low.
35:33Accumulated. And then we went off in
35:35that direction. Accumulated, yeah? So,
35:38accumulations basically are where you're
35:40going to take breakouts from.
35:42When you see an accumulation, it's
35:44usually best to take it in the direction
35:46of
35:47the movement we've just had. So, you may
35:50be aware I've got an indicator called
35:52the symmetrical triangles indicator. And
35:55often you will find in accumulations
35:58you'll discover symmetrical triangles.
36:00I'm just trying to find one on this
36:01chart, which I can't
36:03really. There aren't any here.
36:05But, um a symmetrical triangle is just
36:07part of a
36:10movement. So, you either go sideways
36:12like that and you bounce from support
36:14and resistance and then the bags will
36:15decide to take off in one direction or
36:17the other, depending on the supply and
36:18demand. Or, you will push up and you
36:20will basically push down and then you
36:23can't quite make a higher
36:25uh high.
36:26Uh so, you make a higher low, and you
36:28can't quite make a lower low, either.
36:30So, you make a higher low, and then you
36:33bounce around like this, and price
36:35contracts. This is all part of an
36:37accumulation, as well. From there, you
36:39will get a distribution, usually in the
36:40direction of the previous move. So, it's
36:42basically a pause, where we've gone,
36:45"Okay, price discovery. Can we trade up
36:47here? Yes, excellent. I've got tons of
36:50orders up here to execute. I've got tons
36:52of orders, cuz I tried to find someone,
36:55and you're the person I came across.
36:56Let's do business." Yeah, that's what an
36:58accumulation is. Accumulate orders, and
37:01the speculative desks at this point will
37:03be sitting there going, "Excellent.
37:05We're building a pot." And then they
37:07will wait for the market maker's desk,
37:09or they will know which direction the
37:11commercial desk is going next, and then
37:13they will basically make an order in
37:14that direction. So, speculative desks in
37:17banks very, very, very easy to make
37:20money. Think about it. If you know that
37:23you've got a load of orders that are
37:25going long for the commercial desks,
37:27and you accumulate a position by buying
37:30and selling lots of orders, and you have
37:32a net long on it, so you say you're 1
37:34million long, and you've got 500k of
37:37shorts held, your net is half a mill
37:41uh long.
37:43Yeah? You know that there's a massive
37:45order to execute long for
37:47Microsoft on Euro CAD,
37:50you can't fail to make money, cuz you
37:51know the bank's going to drive it that
37:53way to try and find someone to sell the
37:54orders. Price is going to break out of
37:56that accumulation. Yeah?
37:57>> [clears throat]
37:57>> Often, you'll find false breakouts, and
37:59all those are just basically parts of
38:01accumulations,
38:03where the range widens, because they
38:05need to find prices at different levels
38:06outside of where they've been happy to
38:08trade in that balance area. That's what
38:10false breakout is. But eventually, it
38:11will go, and it tends to be a
38:13fundamental that drives it.
38:15Um so, that's accumulation and
38:17distribution. Um
38:19there's lots of different theories about
38:21this. If you look at the smart money
38:23concepts guys, they would say something
38:25slightly different because the smart
38:27money concept theory is all about
38:30banks hunting us, being our enemies.
38:33Banks don't know we exist. I know people
38:35in banks.
38:36Uh they don't know anything about retail
38:39trading. Yeah, they are not going to
38:41somewhere to fill an order because they
38:43know there's a load of retail traders
38:45that are shorting the market there.
38:47That's not what happens in banks. The
38:49volumes they're talking about, if you
38:50put every retail trader on the planet
38:52together in one broker and put all their
38:54stop losses in one place, they'd just
38:55take it in one go and they'd still be
38:58going, "Got any more?" There is so much
39:00volume that goes through this market. We
39:02do not exist to them. We are
39:04The way I used to put it in a in an old
39:07course I used to do was we are the piece
39:09of poo from the fly stuck to the bottom
39:11of their shoe that they haven't even
39:13noticed because it's a brand new pair of
39:15shoes every day cuz they're a banker.
39:17That's how insignificant we are, yeah?
39:19We do not exist. So, do not conform to
39:22these stop run theories. It's just
39:25basically orders, price discovery orders
39:28where they're saying, "Anybody up here
39:30got any orders? No? Okay, we come back
39:32into balance." Yeah? They're not running
39:34your stops. They they are looking for
39:36orders. They can't find them, so they
39:38can come back into balance. So, it's
39:40just another way of looking at the same
39:42thing. Uh distinguish between structural
39:44trend trend from short-term noise. We've
39:46kind of covered this. It's to do with
39:47the distribution.
39:49So, it's
39:50the the structure we have, market
39:52structure. The market's going to move in
39:53structure. It will have a direction.
39:56That will be a higher high, a
39:59higher low, and then a higher high. But,
40:01the
40:02way that it gets there is never going to
40:05be the same. And this is what makes
40:07trading so hard. You can look at price
40:10action patterns. You can study Elliott
40:12Wave. You can look at head and shoulders
40:13patterns and Batman patterns and
40:16harmonics,
40:18um, Gartleys, there's a million
40:20different price patterns out there that
40:22you can paint on a chart. But at the end
40:24of the day, all of them, Elliott wave
40:26especially, forms around an A, a B, a C,
40:30and then what will happen next? Will it
40:32be a D or will it not? That is it. It's
40:35binary. After the first one you see, the
40:39next one is unknown. Yeah?
40:43You cannot predict it. It will be 50/50.
40:46It's going to make a higher high or a
40:47higher low. It's going to do one of
40:49those two things. You can't predict it.
40:51Yeah? So,
40:52the structural trend and the short-term
40:54noise, the short-term noise is basically
40:57just the movements up and down in the
40:59accumulations, where we haven't got any
41:02idea which way the banks are going. They
41:04don't know yet because they don't know
41:06what the orders are going to come
41:07through that are going to drive it long
41:08or short. Yeah? So, there isn't a way
41:11to, um,
41:15predict the future, but there is a way
41:17to trade those patterns. Yeah? So, when
41:20we look at the types of strategy, which
41:22we're thinking of doing later on this
41:23week, three types of strategy, or maybe
41:25it's next week,
41:26you'll see that there is only three
41:28things that the market can do. So, you
41:31when you see this pattern, you do not
41:33become a trend trader. You become a
41:36breakout trader or a mean reversion
41:38trader.
41:39When you see this type of pattern
41:41forming, yeah? You become a trend trader
41:45or a mean reversion trader. But you do
41:48not become a breakout trader. So,
41:49there's ways that you you need to
41:51identify what is going on
41:53so that you know what to do next.
41:56So, with this type of pattern, for
41:58example, you become a range trader until
42:01you're proven wrong. So, you sell the
42:02highs and you buy the lows and you keep
42:05doing it until the market says,
42:07uh, "No, we're now out." And you go,
42:09"Okay, I'm no longer
42:12a range trader. I am now either a trend
42:15trader or a breakout trader. Yeah. So,
42:18you've got to be able to understand the
42:19difference between normal market
42:21structure
42:23and accumulation distribution balance.
42:27Accumulation and balance basically.
42:29Um
42:32Aligning entries with dominant drivers,
42:33that's kind of what I've just discussed
42:35there. So, that's basically it. How and
42:37why the markets move. Anybody got any
42:40questions on that?
42:44You can either talk or you can type.
42:47Uh let me just have a quick look at the
42:48chat to see if there's anything there.
42:49What I don't understand are the moves
42:51that uh then for example, after the Fed
42:54rate cut last week, which should weaken
42:57the dollar, and the dollar had
42:58short-term strength. Okay, so
43:02Uh let's quickly look at that one. Let
43:04me just put my screen share up. One sec.
43:11Um
43:13So, the Fed last week
43:16Uh
43:17short-term strength. So,
43:20Uh
43:21where was that was there, wasn't it?
43:2719th of September.
43:39Um ba ba ba ba ba where are we?
43:49I must have lost
43:59Uh
43:5917th of September.
44:04So, that was there. okay.
44:06So, that's your Fed
44:08um
44:09cut, yeah?
44:11There.
44:12So,
44:13like I was saying, when um banks and
44:15institutions are going to uh forecast
44:19something is happening, what they will
44:21tend to do, US dollar CAD is a bad
44:23example for this one. I'm just going to
44:24pick the pound US dollar.
44:26Okay.
44:27What they will tend to do is they will
44:29already make that move, okay? So, you
44:32can see here
44:34that
44:36prior to that news event,
44:39the market had been weakening the
44:40dollar.
44:42Yeah? So, this move here, remember I
44:44said 4 to 6 weeks roughly before an
44:47expected differential or the difference
44:50in uh sentiment happens, banks and
44:53institutions will move into that move,
44:56okay? So, they had already weakened the
44:59dollar when that news event came out,
45:02right? So, they've already moved from
45:04here to here in the understanding that
45:07the Fed were going to cut the interest
45:09rates. The move has already happened.
45:12Banks and institutions preempt movement,
45:14yeah? They are forecasting ahead as to
45:17what is going to happen, which is why
45:19when you get something unexpected
45:21happen, you get the biggest movement,
45:23yeah? When we get an interest rate
45:25decision not being what we forecast, you
45:28see those 200 ADR days like that. And
45:31that's because they will be unwinding
45:33their position. So, let's say for
45:35example there,
45:37the Fed hadn't cut the rates. They kept
45:40them the same. That would be massively
45:42bullish for the dollar. So, what you
45:44would see is that just suddenly go boom,
45:47and half of that move would be gone
45:49within hours, because the banks would be
45:52like, "Ah, we're offside on this. We're
45:55going to lose money. Dump the lot."
45:58Yeah? So, strengthen the dollar cuz
46:00they've been selling the dollar for
46:02weeks, they would then
46:04buy back all those dollars because they
46:05want to hold them because the interest
46:07rates are staying high and not dropping.
46:09That would dump the pound US dollar.
46:11Don't forget if you're buying the
46:13dollar, that comes down. If you're
46:14selling the dollar, that goes up.
46:17So,
46:18it's all to do with the preemptive and
46:20this is where the scorecarding comes in
46:22in banks and institutions which I've
46:23discussed before, um where every news
46:26event that we have in the calendar has a
46:31um a scorecard attached to it. So, each
46:34of these will have a price uh a point
46:38value depending on their impact,
46:40depending on what they are, they will
46:43have a point value and at the end of the
46:45day, what you get is a score above or
46:49below zero meaning you should buy or you
46:51should sell that currency. So, the bank
46:54the market maker desks, the commercial
46:56desks, and the speculative desks will be
46:58given a directional bias based on the
47:00banks' overview and long-term
47:02scorecarding for that currency.
47:04If they are expecting within 4 to 6
47:06weeks an interest rate drop, they will
47:08start to sell that currency because
47:10their overnight interest rate that they
47:12will earn on it will drop. Therefore,
47:14they will scale that currency back in
47:17favor of a currency that has a higher
47:18interest rate to make sure that they
47:20maintain more capital and they grow that
47:23capital faster.
47:24Their job is to is to
47:27invest and grow money, yeah? So, you put
47:30it where you're going to get the best
47:32interest rate. So, at the moment, if you
47:34look at interest rates, where are you
47:37better to put your money at the moment?
47:40The dollar still.
47:414.25 is now, sorry,
47:43uh the actual. So, the dollar is the
47:45still the best place
47:47to have your money. It's not as good as
47:49it was
47:512 weeks ago, but it's still better than
47:53having it in the pound. It's better
47:55better having it in the Canadian dollar.
47:56It's better than having it in the in the
47:58New Zealand dollar, the Kiwi. Better
47:59than having it in the Aussie. Yeah? So,
48:02that's why we've got some strength in
48:04the dollar because
48:06they were I think forecasting it to drop
48:08a little bit more, but it didn't go down
48:10to 4%. It went to 4.25. So, oh, it's not
48:13as bad as we thought. So, maybe we'll
48:15buy back a little bit of that. You've
48:17also got the profit taking
48:20element.
48:21The speculative desks
48:23>> [clears throat]
48:23>> will have been building long-term
48:25positions or
48:27medium-term positions
48:29uh against the dollar, which they will
48:31be in profit on. They will want to take
48:33profit on that order. Yeah? They've got
48:36the result they wanted. Fantastic.
48:38Right, let's capitalize on it. Let's now
48:41get out of the position. So, if they've
48:43been selling the dollar, yeah? They
48:45would be holding a long short position
48:47on the dollar, reducing their supply of
48:49dollar. They will then want to buy a
48:50load of it back because they know
48:52there'll be demand in the opposite
48:53direction.
48:54So, there's the profit take element in
48:56it as well. That's what the market does.
48:58It just moves
49:00in waves and cycles. I didn't actually
49:02cover that part. Um
49:04when you're when you get a move like
49:06this, there will always be a profit take
49:08on it, which is a percentage of the
49:09move. Yeah? Fibonacci. It's very simple.
49:11You go from there to there and it will
49:12pull back a percentage. 38%, 50%, 61.8%,
49:1723%, 71.9%, whatever percentage you
49:20pick,
49:21that is what we're saying is when we
49:23move a certain distance, we'll move back
49:25a certain distance.
49:26The reason these moves happen is because
49:29within that leg,
49:31you've got commercial orders,
49:33speculative orders,
49:35and you've got other orders in there,
49:37which will be things like pension funds.
49:41Um and uh long-term investment holds.
49:45Yeah? So, there's all sorts of order
49:46types in there, which we've already
49:48discussed.
49:49So, if these guys
49:51are one-way orders, these guys are
49:55two-way orders, but very long-term,
49:58quarterly holds, six-monthly holds. So,
50:00they're kind of one-way orders. These
50:02guys here are two-way orders. They are
50:04buying with a view to sell short-term
50:07for profitable gain.
50:09So, if you have
50:1220% of the orders are for pension funds,
50:1730% of the orders are commercial orders,
50:20and the other 50% are speculative
50:22orders.
50:23When that market moves up,
50:25and the speculative orders get sold, it
50:28will pull back 50%. It won't come all
50:30the way back because the commercial
50:32orders are one-way executed, the pension
50:34fund orders are one-way executed. So,
50:36therefore, you don't undo the entire
50:39move.
50:40You undo the percentage of it that makes
50:43you profit, and then you continue the
50:44leg, or you do whatever. Doesn't matter
50:46what happens after that. After that
50:48execution's done, it's done. The next
50:50batch of orders is the next batch of
50:51orders.
50:54Um so, yeah, so that's basically what
50:56that move was. They
50:59are happy to buy dollar because there's
51:01still no reason for the dollar to be the
51:03weakest thing out there
51:05in their mind at the moment. Um you
51:08know, and this is the thing with news.
51:09Uh we're going to cover news trading
51:11in
51:12um
51:14a separate part, economic news scalping.
51:18News
51:20will be taken in different ways by
51:21different banks and institutions.
51:23Um some of them will forecast and
51:26scorecard differently. They'll all
51:27They'll all forecast and scorecard
51:29differently. The analysts will all be
51:30different. Um but they'll get roughly
51:32the same idea, but
51:35when a news event happens, the
51:38green or the red, if you like, the
51:40bullish or the bearish of it
51:43is irrelevant. It's basically going to
51:46move the way that they need it to move
51:49when that news comes out. So, if as a
51:51bank I've got a ton of short orders to
51:53execute on something in the euro and all
51:56the PMI figures are coming out, I know I
51:58can execute it cuz there's going to be a
52:00larger volume coming in, large liquidity
52:02pool from all banks and institutions at
52:04the same time. So, I'll be able to get
52:06my job done.
52:07Yeah? Now, if that
52:09balance at that news event should be
52:12bullish for the currency, but at that
52:15point in time there's a load of sell
52:17orders coming, it will move down in the
52:19opposite direction. Our job as traders
52:21is not to pick the direction. Our job is
52:24to trade the movement.
52:26So, if a price action happens on news,
52:30for example, let's pick that one there.
52:35Um
52:36if there's price action on news there,
52:38yeah, in one direction,
52:40our job is not to
52:43assume
52:44because it's a green or a red news event
52:46that it should do that or that. Our job
52:49is to identify what it did,
52:51analyze that, and then make a decision
52:54where to go next. Yeah? We cannot
52:56predict which way that spike is going
52:58because there's a volume of orders that
52:59come in that's going to make it go up or
53:00down.
53:01Whether it goes up or down has got
53:02nothing to do with the direction.
53:05So,
53:07the as you've quite rightly pointed out,
53:09bearish for the dollar, they dropped the
53:11interest rate. What had happened? The
53:13dollar dropped. Yes, it did. So, the
53:16spike went in the right direction for
53:17the news event, but then it went back
53:20the other way because they'd already
53:21done the move. So, your job is to see
53:23what happens there and then decide
53:25whether or not to do that or that after
53:27the news event has happened.
53:29But that is not something you can
53:30predict or trade. We'll cover that in
53:32the in the news trading side of the
53:34course.
53:36Uh there we go.
53:37Hopefully that answers the question.
53:40Got it. Okay, any other questions?
53:45No?
53:47Brilliant. You're very quiet.
53:50I like the fact

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