How do large exchange players form positions

Who and how influences price fluctuations in the market?

So, let’s understand how the central banks, large hedge funds, investment, and insurance corporations carry out currency transactions. Thanks to the huge volumes of transactions, they are the ones who maintain a high level of liquidity of trading instruments. In addition, these major players use conversion operations to place loans, issue bonds and attract deposits, therefore their positions have a strong influence on market movements.

Figuratively speaking, large forex players are always a few steps ahead of private traders, they are more informed, so the majority of market participants carefully monitor the actions of large players.

Therefore, for the bulk of participants, it is important to have time to enter the market in the direction of the movement of large players in order to get their profit from a given direction. Thus, a potentially successful entry point for private traders is the moment when large orders are executed on the market.

Principles of position formation by large players

This topic is a rather closed section in the analysis of price fluctuations. If on basic topics, on the Internet, at the moment you can find a small fraction of useful information, then this topic has almost no coverage.

There are many reasons for this. The main reason is that in most cases large participants in trading operations use this method and they simply have neither the time nor the desire to paint these methods on the Internet. However, references to this method can be found in the old literature on working in financial markets, mainly of course stock. For example, your humble servant learned about this theory for the first time from Benjamin Graham’s book “Securities Market Analysis”.

The essence of the theory is that large players never enter the market at once with all their desired volume. They always form a position for a while. This is because initially, the new player does not know the amount of money currently in the market. And if the market is “thin”, then an injection of even several tens of millions of USD can dramatically move the price in one direction or another. Of course, no one is interested in this. For on the exchange, everyone is for himself. Large fish prey on large, but small (we) are content only with attempts to unravel the plans of large players. And if you move the market in any direction with your money, there will always be someone who wants to appropriate your money with your wallet more than yours and of course, it will. For this reason, it makes sense to “hide” their trading operations from other hunters. In most cases,

The figure below shows one of the options for recruiting a long position on the EURUSD currency pair :

Firstly: when a rather large position is formed, a sideways (flat) is always formed. And the set itself can be traced only inside this sidebar in a compartment with the most informative type of market volume – tick. I will explain why: When the real volume is formed, the position of a major player is eroded by a huge number of small orders and the real volume will not show a surge, it will simply show a smooth growth, which is constantly happening on the market. But the tick volume does not show this – it shows the number of price fluctuations over a period of time, and this is exactly what we need. When this heap of orders is executed, the tick volume will simply go through the roof, which will be reflected in the high column on the chart. An absolutely ideal option would be the formation of “volumetric” candles during off-scale volumes (1,2).

Secondly: the essence of a set of positions most often comes down to the formation of the so-called “castle”. In other words, both a buy position and a sell position with the same volumes are opened simultaneously. This is done in order not to move the market during the set. Otherwise, with huge volumes, the “thin” market may fly off by 2-3% in a moment. There is always a gap between any transactions because it is impossible to open a “castle” position at the same time to the nearest second. Just these temporary breaks form the “volumetric” candles.

Thirdly: The more “voluminous” candles – the stronger the position and the stronger the price course will be at the time of sale.

The implementation of the position is simply – part of the hedging position is removed from the market. In other words: if the main idea is to buy, then half of the volume for sale is removed from the market and the first upward leap occurs (3).

Well, then – a matter of technology and time. Gradually, in small portions, the entire opposite position is removed, which pushes the market higher and higher. And when the whole position is removed, the main buy position is closed, which, of course, throws the market down. Why? Well, it’s just … The market sees that the price goes up sharply, and the players begin to enter smoothly against the market to catch the so-called reversal. With each new point of price increase, the number of sellers grows, the volumes of which, sooner or later, will be equal to the volumes of our buyer. And at this moment – the buyer removes his purchase, but the volume of sellers remains! Here you have a sharp rollback (4).

Working inside this is very dangerous, as there are many tricks and tricks of major players. Here is one of them:

At the moment when the volume of purchases is removed, the market goes down, it would seem that everything, but at one fine moment, the market again begins to grow sharply and “carries out” all who were in sales. How is it that the buyer has left? And no! He simply took away part of his position, waited for the sellers to begin to fix on the rollback, and then again threw their purchase volume back into the market – the price flew up again, since now there are not enough sales to keep the buyer. About how many times have you seen this in the market? But now you know how and why this happens.

Well, in conclusion, I add: this principle is only a small part of the methods of working on the exchange. However, knowing it, you can easily earn money either together with the one who is building his position or against him. The choice is yours, but it is worth remembering that the chances of not falling for the tricks of large players are greater when you work with them in the same trend.

I recommend reading in my colleague ’s article here useful information on how to track a major player and join him. 

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