Forex trading like banks
Forex trading like banks is a term you see all over the internet these days. What’s funny, is that the people that tell you to trade forex like a bank, have never worked at a bank and don’t even know why big banks exchange foreign currency. These people make it seem like a bank is controlling the entire market and planning every single move. This is not the case. Do you want to know more about forex trading like banks? Then read this article.
What do people mean when they say “forex trading like banks”?
Whenever you see forex trading like banks, people will make you believe that certain candles are created by banks and that banks move price this way and that way. Now, there is some truth to this. Huge players can move markets and can absorb liquidity to create an advantage. However, it’s not like most people will make you think this process goes.
When people, or educators, are talking about forex trading like banks, they highlight candles that banks make and they draw levels that banks also supposedly used to trade. You have to realize that a bank is not looking at an MT4 chart and planning to trade once a certain level is hit. This is not how they operate. Thinking this is flawed thinking and will harm your trading performance.
What do big players in the forex market do?
Like I said earlier, banks don’t plan big directional moves in the markets in order to fuck retail traders. They enter the markets to fill orders, generate liquidity and to hedge their longer-term investments or trades. This is what the banks do. This is forex trading like banks. This is not how us retail traders can and will trade. This is not how we can profit from trading the forex markets.
There is a real difference between retail trading and institutional trading. We try to profit from small directional moves. This takes a different approach.
How to actually start with forex trading like banks?
Now that we have the bullshit out of the way, let’s get serious: how to start with forex trading like banks? The way I always explain forex trading like banks, is that you are as prepared as possible and you treat your trading like you are running a business. Banks don’t just draw lines and enter. Every position they take is well-calculated. They know exactly what they need to buy, when they need to buy it and how they need to buy it. They know the costs involved. That’s how you should approach trading as well. But how can you actually do this? By following the following principles:
· Knowing your edge
· Having multiple plans
· Reviewing & learning
· Minimizing costs
These are the most important points to consider when you want to become a profitable trader. These are, in my opinion, how you start with forex trading like banks. So, not by learning a concept that banks “supposedly” use, but by approaching trading the same as banks & professionals do.
Knowing your edge
This is something I spoke about before, and I will do it again: know your edge. Know why you deserve to make money trading. Most people don’t have an edge and the ones that do don’t know their edge, therefore they fail. It’s absolutely vital to know your edge and that’s why we at CDFX Trading put so much time into edge development. Without an edge you fail. Without knowing your edge you fail. So, start by asking yourself the following questions:
· Do I have an edge?
· What is my edge?
· Why & how does my edge work?
If your answer to the first question is “no”, then you know what you need to do in order to improve. You need to get an edge. How do you get one? By learning concepts that work in a market. Then you start with building rules around these concepts. The next step is testing it on years of data, followed by demo trading and live trading. Is that profitable? Then you have a proven edge.
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So, once you have an edge, start asking yourself what it actually is and why it works. How strong is your edge? Do you have a slim edge and does it take time for it to play out, or is your edge strong? What are ways you can improve that edge?
The answers to these questions can give you an insight in how you can improve your trading. I suggest you take it seriously, because this is how you improve.
Having multiple plans
In order to be able to execute your edge effectively and in order to improve, you need multiple plans. You need a pre-market plan, a plan for executing and a post market plan. A pre-market plan is all about how you find the setups with edge. How do you need to analyze the markets & when. Make this as clear as possible. This minimizes the mistakes you are going to make.
During a trading session, you need to be 100% focused. How are you going to make sure that you are focused? You can do this by meditation, regular breaks, clear goals etc. Many ways to do this. The most important thing is that you have a clear, written down plan.
After your session, it’s time to journal and improve. You will always make losing trades. Most people simply go to the next trade, which means you wasted money. But if you actually take the time to learn from your losers, that’s not wasted money but simply a down payment for a valuable lesson. Treat your trading this way and it becomes way more fun.
Reviewing & learning
This comes back to journaling. Forex trading like banks is all about planning, learning and improving. So, actually learn from your mistakes. Otherwise, just quit with trading now. You are better off investing in a passive manner, or going to the casino, or, working at McDonald’s.
What connects your losing trades? Why did you lose? Did you make a mistake, or is it a normal loser? Investigate it and find out what went wrong. Try to learn as much from your mistakes as possible. This is forex trading like banks.
Minimize costs
Costs are very important when it comes to trading and investing. Most people focus on making a good trade, when in reality they could make a guaranteed return, if they cut costs first. Especially in investing this is very important. Let’s say you want to buy an ETF that tracks the S&P 500. You can buy one with an expense ratio of 0.5% and another one with an expense ratio of 0.2%. You buy the exact same thing, but one is more expensive. By buying the cheaper one, you save 0.3% in costs. Over the long run, these costs compound and give you a guaranteed return, possibly of 10’s of thousands of dollars.
Same goes for trading. Do not put up with wide spreads or high commissions. There are so many brokers out there. Pick a cheap one with good execution and low costs. This automatically increases your edge, without even becoming a better trader. You have to realize that saving in costs is a guaranteed return. So, also take that into consideration when placing a trade or making an investment.
When banks trade, they look for the cheapest way to make the most return, in the safest way. That is also forex trading like banks. If you want to start with forex trading like banks, you should also look at costs.
To conclude
I really hope you now know what forex trading like banks is. I have written some more articles around the same topic, but I still see lots of people thinking they trade like banks when they draw a line and swing a 0.02 lot in GBPUSD, using a 5 pip stoploss. You now know that this is ridiculous behavior and this is not forex trading like banks.
If you are serious about improving, start with answering the questions asked in this article. By answering these questions, you can really improve your trading or investing, and maybe eventually make it.
If you are interested in what we do, we offer 1-on-1 no-bullshit forex & investment coaching. This way, we help our clients in a personal way. If you are interested, you can schedule a free call with us to find out if this is something for you.