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Explained: The bank trading strategy in forex
Source: | Author:finance-102 | Date2023-03-08 | 256 Views | Share:
The bank trading strategy in forex refers to the approach taken by large financial institutions, such as banks, in trading the foreign exchange market. These institutions typically have significant resources and access to advanced trading technology, which allows them to engage in sophisticated trading strategies. The bank trading strategy is an approach where traders aim to accumulate when large players are doing the same and exit when the trend ends. Traders must understand market cycles such as consolidation and trading and have a bigger picture to decide whether to buy, sell, or stay on the sidelines.

The bank trading strategy in forex refers to the approach taken by large financial institutions, such as banks, in trading the foreign exchange market. These institutions typically have significant resources and access to advanced trading technology, which allows them to engage in sophisticated trading strategies. The bank trading strategy is an approach where traders aim to accumulate when large players are doing the same and exit when the trend ends. Traders must understand market cycles such as consolidation and trading and have a bigger picture to decide whether to buy, sell, or stay on the sidelines.


The three stages of the bank trading strategy in forex are as following:


  1. Accumulation is the first stage where banks and big money managers slowly purchase an asset. During this stage, traders can notice a market that is not making any major moves, and the asset is often stuck in a range. Banks may take weeks or months to accumulate large amounts of an asset to prevent tipping off other traders and causing market dislocation.


  2. The second stage of the strategy is manipulation. In this stage, retail traders often make mistakes by buying or selling after false breakouts. False breakouts happen when an asset breaks through a key support or resistance level but then immediately reverses back. This can cause retail traders to enter trades in the wrong direction, as they assume the trend has changed, while in reality, it was just a temporary market fluctuation.


  3. The third stage of the strategy is distribution. This stage occurs when large institutional traders are no longer concealing their motives, and the asset starts moving in a certain direction. This is where most professional traders enter the market. During distribution, the forex pair starts moving in a particular direction and a long-term trend is established.


To become a better bank trading strategy trader, focus on longer charts such as daily and weekly and combine the strategy with indicators like A/D and SMI. Additionally, use trend indicators like moving averages and Bollinger Bands to know when to exit a trade.


In summary, the bank trading strategy involves observing and understanding the three stages of accumulation, manipulation, and distribution. By identifying these stages, traders can make informed decisions on when to buy, sell, or hold an asset. It's important to note that this strategy requires a thorough understanding of the forex market and its cycles. Traders should also use other tools like indicators and chart patterns to help them identify these stages accurately.


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