Direct from the desk of Dane Williams.
There’s a common misconception that institutional forex traders, including major players like banks and hedge funds, disregard the significance of technical analysis.
However, I’m here to tell you that this notion couldn't be farther from reality.
In truth, institutional forex traders not only acknowledge the value of technical analysis but actively incorporate it into their trading strategies.
Albeit with a kicker.
They incorporate the use of technical analysis in a manner distinct from that of your average retail forex trader.
The divergence in approach lies in the complexity and sophistication of their methods.
Unlike the straightforward application of basic technical strategies, such as simple moving average crossovers or trendline breakouts on hourly charts, institutional traders navigate a more intricate path.
Ensuring that they capitalise on their resources, inside knowledge and overall market positioning.
Their use of technical analysis serves multiple purposes, each contributing to its own strategic advantage in the market.
Firstly, they leverage technical analysis to determine the appropriate position size for their trades.
By calculating risk and potential returns based on technical insights, institutional traders can optimise their exposure within the market.
Ultimately allowing them to strike a balance between risk management and profit potential.
Secondly, technical analysis plays a pivotal role in identifying levels of liquidity present in the market.
Institutional traders rely on technical patterns and price action to gauge market depth and the availability of buyers and sellers at various price points.
Armed with this knowledge, they can execute substantial orders without causing significant market disruptions.
A consideration crucial to being able to trade the size that institutions need to on a daily basis.
Moreover, one notable practice among institutional traders involves utilising technical analysis to pinpoint potential stop-loss orders set by retail traders.
By strategically triggering these stops, they can potentially capitalise on price movements that ensue by soaking up the stop orders of retail traders in order to get size on.
This strategic approach to market manipulation, often referred to colloquially as stop hunting, requires a deep understanding of market dynamics and technical patterns.
It's worth emphasising that while institutional traders do employ technical analysis, as you can see their methods extend beyond mere pattern recognition.
Their analysis is deeply rooted in a comprehensive understanding of market structure, order flowmand the psychology of market participants.
The utilisation of advanced algorithms, quantitative models and vast data resources further enhances their ability to extract valuable insights from technical indicators and chart patterns like support/resistance.
Thus, the idea that institutional forex traders dismiss technical analysis is a misperception that fails to capture the intricacies of their trading strategies.
In reality, technical analysis is an integral component of institutional trading methodologies, enabling them to make informed and strategic decisions in the forex market.
Their advanced approach, encompassing position sizing, liquidity sourcing and tactical use of stop hunting, sets them apart from typical retail traders.
Best of probabilities to you.