Why Your Forex Trading Strategy is Utter Nonsense

We already know that 99% of retail traders fail to make money in the long term, so we can say with absolute certainty that whatever they're doing doesn't work. Not the systems they use, the rules they follow, or the tools they rely on. And at the core of the problem is their beliefs— how they think forex works. I'll remind you that retail forex was invented as a brand new gambling industry. You are the product. The early forex brokers who founded this new industry were unregulated casinos, and they could only profit if you lost. The only source of revenue in retail forex is what comes out of retail traders' bank accounts. So they went out of their way to design the industry to guarantee you lose. You had to lose for them to make money. One of the ways they did that was to tell you that forex was like other speculative markets like stocks and could be traded in the same way. It can't. Forex is not like any other market. It is utterly unique. And if you try to trade it like the other markets, you will fail. The previous video in this series hopefully went some way to explaining the non-speculative utilitarian nature of forex and how it works. What I want to do in this lesson is explain why why the popular strategies retail traders are using don't and cannot work in Forex. By learning about what doesn't work, you can fast-track your journey to success because you can avoid pointless endeavors which are a waste of time. Knowing what doesn't work, by a process of elimination, it's easier to narrow down and focus on what does work. I'll start with quite a broad look at technical analysis in general, and then I'll dive into some of the specifics like stop hunts and support and resistance that are almost ubiquitously used by the losing crowd. And let me make one very clear point before we start: I am talking about Forex. I am not an expert in other markets, and I won't talk with any authority about what does or doesn't work in those other markets. What I'm referring to in this video is specific to forex. Please remember that before anyone gets their knickers in a twist in the comments section. Okay, so right out of the gate, I'm going to tell you that technical analysis is utter nonsense and has zero value in forex. Tossing a coin is more predictive than technical analysis, and there are several fundamental reasons for that. The first and most obvious is because banks don't use price charts. You must remember that forex is a strictly interbank market. Only banks are allowed to trade in it. Almost half, 46%, of all forex volume is the tier 1 banks trading with each other, mostly via swaps. The banks are simply lending each other money via short-term loans at fixed exchange rates and charging each other interest. A swap circumvents exchange rate fluctuations, so they are immune to whether or not the price changes. The other 54% of volume is the Tier 1 banks exchanging money with, and on behalf of, their customers, for which they charge commissions, as I explained in the previous lesson. Once again, they are immune to whether or not the price moves because they charge the customers a spread, or markup, several thousand times wider than what they get themselves in the interbank level. So banks are agnostic about price direction. It doesn't matter to them because they are guaranteed to make profits from the fee structure that they charge. And that is because forex is a utilitarian market. People exchange currencies out of necessity. If you've booked a foreign holiday next August, you need to exchange your money regardless of what the exchange rate is. If a European hedge fund wants to invest in shares listed on the New York Stock Exchange, they need to exchange their euros for US dollars regardless of the exchange rate. If a UK company wants to import steel from Japan, they need to change their British pounds for yen to pay their supplier. These are the things forex exists for— international cross-border trade— and no one is waiting for a head and shoulders pattern or any other meaningless shape before exchanging their funds, and if they are concerned about exchange rate fluctuations, they use forwards and options to hedge their exposure. All a bank trader has on his or her monitor is the current price and the liquidity in the depth of market ladder. They would be fired immediately on the grounds of extreme stupidity if they were ever caught looking at candlestick charts. Bank traders are buying and selling back and forth randomly all day long in response to whatever their customers' needs are. No one gives a crap about where the price was or where it's going next. The only people who use candlestick price charts are retail traders. Now, slightly more experienced retail traders who have done some research will eventually, somewhat reluctantly, acknowledge and admit that technical analysis has been rigorously tested scientifically and proven to have zero predictive value. But, they claim, it can act as a self-fulfilling prophecy. The theory goes that if enough people are all looking at the same pattern and all interpret it the same way, and then they all buy or sell at the same time, then the price will move in a predictable fashion as a result of everyone believing the same thing. It's a pleasant fantasy, but let's examine the evidence. We know that the retail sector accounts for only 2.4% of total volume in the forex market, but within the smaller segment of spot, which is the segment we bet on, the retail volume is 3%. So, assuming every retail trader on the planet was looking at the market at exactly the same time of day and looking at the same pair chart, on the same timeframe, using the same indicators and looking for the same pattern and interpreting that pattern the same way and decided to buy and sell at the same time, their total combined buying power is only 3% of the volume. So even if that infinitesimally unlikely sequence of events did somehow miraculously happen, the retail sector is still far too small to overpower the other 97% of volume from the banks who are not looking at charts or paying attention to silly shapes. The influence of retail traders is even smaller when we realize that they're not all looking at the same charts. We can see exactly where the distribution of their volume is concentrated within the spot market. $21.3 billion is on the US dollar yen. $13.3 billion is on the euro-US dollar. $3.9 billion on the pound-US dollar, $3.6 billion on the Australian dollar-US dollar, $3 billion on the US dollar-Swiss franc, $1.7 billion on the US dollar-Canadian dollar, and $1.2 billion on the New Zealand dollar-US dollar. And within those pairs, they are all looking at different time frames, using different indicators, looking for different patterns, and are split differently on the buy or sell side. In other words, they are all doing something something completely different to everyone else. So no, technical analysis is not a self-fulfilling prophecy in forex. But in case anyone still believes it might work, there's one final nail in the coffin that really puts this to rest once and for all. At least 96% of all price moves happen without any buying or selling taking place. Zero orders. Zilch trading. Recall what I said about triangular equilibrium in the last lesson. When a trade is made on the pound-US dollar, the value of the euro-pound is instantly mathematically updated and altered as well, and then the euro-US dollar has to be altered, all within their triangle. But each triangle is connected to another triangle The euro-US dollar is connected to and alters the euro-Swiss franc, which then alters the US dollar-Swiss franc, and then the US dollar-Swiss franc alters the Swiss franc-yen, which alters the US dollar-yen, and on and on in a cascade like a series of dominoes falling across the entire market. Most price moves are moving because of this, not because of any real buying or selling. And as always, I will give you proof. Tick volume in forex measures every time the price changes. The more often the price changes, the higher the tick volume count. Now, the euro-US dollar is the most heavily traded pair across every forex market segment, and in the spot market, there's over $577 billion traded on average each day. The NZD/JPY, on the other hand, is one of the least traded pairs, with only $2.5 billion each day. So the EUR/USD has 230 times more trading volume than the NZD/JPY, and yet the average daily tick volume on the NZD/JPY is 188,000 compared to the EUR/USD, which has only 73,000. In other words, the NZD/JPY Price changes 2.5 times more frequently than the EUR/USD, despite having 230 times fewer real orders. Why? Why is the price changing so much more on a pair that has the least trading volume? Because of triangular equilibrium. A real order and change of price on one pair changes the price on every other pair even though no orders have happened on those other pairs. But remember what I said in the last video about supply and demand. The value of a currency is determined by its supply relative to the available quantities of other currencies. A pair like the euro-US dollar is massive, with enormous quantities of each currency available for exchange. If we add or remove $1 billion or units, it doesn't make much difference to the relative value of the dollar. Compared to the euro because 1 billion units is less than 0.002% of the daily volume. That's why the price doesn't move much on the euro-US dollar. But 1 billion units on the New Zealand dollar-yen is 40% of the daily volume. In relative terms, the same size order has a much bigger impact and change to price. So a real order executes on a major pair like the euro-US dollar and changes the price a small amount, but via triangular equilibrium, the price change on the minor pairs is proportionally much bigger. And the more minor the pair, the more its price is altered because of triangular equilibrium. For want of a better phrase, the bigger pairs bully the smaller pairs and push them around. The smaller the pair, the more its price moves. This is why the minor cross pairs like the pound yen or the pound New Zealand dollar move several hundred pips a day, whereas the majors like the euro US dollar have the smallest moves. And this accounts for at least 96% of all price moves on all charts, major and minor. Triangular equilibrium. So If prices are moving without any buying or selling taking place, how can technical analysis have any value? Isn't it supposed to be showing us the battle between bulls and bears, the buyers and sellers? There are no buyers or sellers behind 96% of all price moves, so the whole thing is a joke. Prices don't move in forex because of buying and selling. Not even the most optimistically delusional amateur can seriously believe in technical analysis when faced with the real evidence. Now, I'm not saying any of this to insult people who, through no fault of their own, fell for the lie of technical analysis. This is all very simple. If you want to succeed at trading, you need to understand the game you are playing and the rules of that game. You can't beat the forex market if you don't even understand how it works. So that's what I'm trying to show you. Now, this leads to another widespread myth in forex of stop hunts. Whenever the price makes a sudden and large move up or down and then quickly reverses, you will see people posting in forums claiming it was a stop hunt. It's perhaps the most ridiculous of all the ridiculous things amateurs believe. What a stop hunt is supposedly meant to be is big players driving the price in their desired direction in order to trigger clusters of stop orders, specifically retail stop losses, which they then use to accumulate a position in the other direction. In other words, a big player who wants to build a long position pushes the price down to trigger stops at a lower level, and by trading with those stops they get their long position opened at a better price before driving the price back up. The classic concept of the smart money taking out the dumb money. I don't even know where to start with how stupid this idea is in forex. Let's look at what it takes to move the price with real orders, and a quick reminder of what I explained in the previous lesson: market makers provide liquidity at the bid and offer in $1 million increments. Usually equally balanced on both sides, with the intention of buying 1 million at the bid from one customer and very quickly selling 1 million to someone else at the offer, perhaps one pip higher, and therefore making an instant $100 profit. Repeating these microtransactions tens of thousands of times every hour, there are millions of dollars of profit made every day, virtually risk-free. When a customer comes in with an order for $10 million, it consumes the liquidity one level at a time. The first $1 million consumes the first level of liquidity, and when that is removed from the market, the quoted price jumps up to the next level. When that is consumed and removed, price jumps up to the next level, and as each level of liquidity is consumed by the customer order, the price gradually moves higher until the full $10 million is filled. This is what causes the price to move. Demand from customer orders consuming the supply of liquidity, and it's the same in both directions. However, there are multiple liquidity providers all competing with each other, and they are competitive at the market, the best bid and offer, because that's the only place they can deal. They can only take the customer's order if they quote the best price available. So as a result, the amount of liquidity at the best bid and offer is usually much, much higher than 1 million because there are several market makers overlapping. And knowing how much money is traded on each pair and how many times the price changes, we can get a very good estimate of how much liquidity is at each price level. For the price to move just one tick due to a real order All of the liquidity at that level must be consumed. Remember that. On the Euro/US dollar, we know there's an average of $577 billion traded each day in spot. We also know the price changes on average 73,000 times a day. $577 billion divided by 73,000 means there must be approximately $7.9 million in liquidity at every price level. That's about 8 market makers overlapping, quoting the same price. There are 10 levels in every pip, so it will take an order of $79 million to move the price 1 pip. To move it 50 pips will take an order of $3.95 billion. Okay, so let's say a big player believes there are a lot of retail stop losses 50 pips below the current price, and for some strange reason, he wants to trigger those stops. It's going to cost him $3.95 billion to make that happen. Now what? What happens when those stops are triggered? Well, the price would never reverse and go back up, that's for sure. Stop losses are market orders. They are customer orders which consume liquidity. They do not ever act as liquidity. So that big player doesn't interact with them at all. Once triggered, they would cause the price to move even further in the same direction as they eat through the liquidity. Theoretically, this could result in a profit for that big player. We know there's only $13.3 billion of retail money traded on the EUR/USD on average each day, split half on the entry and half on the exit. So If every single retail trader, by some bizarre coincidence, happened to place their stop losses at exactly the same price level, that's about $6.5 billion worth of orders. If that ever happened, they would indeed cause the price to move about another 80 pips. If that happened, the big player who started all this could then take profit, buying back the currency he initially sold, which at $3.95 billion of volume would then drive the price back up 50 pips. His average fill price on the way down would have been at 25 pips, and the average fill on the way up is also halfway at 25 pips. And so he would profit 80 pips in the middle, or about $6.5 billion, after risking $4 billion. Now, after commissions and fees, that's about a 1.5 to 1 reward-to-risk ratio, which is not very good considering he had to risk $4 billion to even try and get this to work. You may think that was worth the risk, but it wasn't, because all of that was theoretical. Firstly, every single retail trader in the world obviously does not place their stop losses simultaneously at the same level. On average, the EUR/USD moves about 70 pips from high to low each day, so that's 700 price levels, and stop losses will be distributed across all of them, with half on the buy side and half on the sell side. That means at best there's only $3.25 billion worth of stops in the same direction on any given day. But of course, that's distributed over 700 levels, which equals $4.6 million of stop orders at each level on average. That's less than the liquidity at each price level, and therefore the price would not move at all once that stop is triggered. The liquidity simply absorbs it and the price remains stationary. So immediately this whole concept collapses. Retail stop orders are simply too small to move the price. Let's be honest, your stop loss is probably worth less than $100, and it's going to take nearly 80 million to move the price just one pip. No one in their right mind is going to spend billions of dollars to trigger a tiny retail stop loss that won't move the price. Secondly, and more importantly for debunking this silly stop hunt concept, retail orders are not even in the market. They don't exist. No one can see them. Remember, you are not trading in the forex market. You're not a trader. You are betting with your broker. Your pending orders are never, ever submitted to the retail market, and therefore no one other than your broker can see them or even interact with them. Not even the banks know about them. There is literally no such thing as retail stop losses sitting waiting in the forex market, so there is nothing to hunt. The idea that a professional institution would risk billions of dollars on a high-risk, low-reward gamble of a stop hunt in forex is comical. And then when you realize the stops that they are apparently hunting don't even exist in the market, the concept turns from comical to insane. Please don't fall for or believe this amateur retail nonsense. There is no such thing as stop hunts in forex. The big boys are not out to get you. You're too insignificant for them to even be aware of you. Now, while we're on the topic of liquidity and the interaction between customer orders consuming that liquidity, let's look at another popular myth of support and resistance. You are no doubt familiar with the idea that price reaches a certain level and bounces off. Well, I can assure you price never bounces off anything. Support and resistance as retail traders understand it does not exist in forex. If you think it does, you are the victim of something called apophenia, a well-known psychological trick of the mind that fools you into seeing an imaginary pattern or shape in random meaningless data. If you've ever looked at a cloud and you've seen the outline of an animal, you've experienced apophenia. I've got an entire video dedicated to this phenomenon in my Trading Psychology course, linked in the description, and I highly recommend you watch that full series. But let me prove to you why support and resistance doesn't exist in Forex. It starts with liquidity. Liquidity does indeed act as resistance. It absorbs and slows down customer orders. If someone submitted an order for $50 million and there was only $1 million in liquidity at each price level, the price would move 50 levels. Whereas if there was $10 million in liquidity at each level, price would only move 5 levels. The more liquidity, the less price moves. Now, the idea behind support and resistance and price bouncing off levels is at these levels there are massive amounts of pending limit orders. So when the price is rising, it runs into clusters of sell limit orders which cause the price to stop and then fall once those sell orders are triggered. Well, that's not how liquidity or limit orders work. Liquidity absorbs customer orders. It does not move price. If there was $10 million in liquidity at the quoted offer price and a customer order came in for $8 million, $8 million would be consumed and removed from that quote, but there is still $2 million available, so the price wouldn't change, not until another order consumed the remaining $2 million. Or the market maker submitting that quote decided to cancel the order and remove it. That's the thing to remember. Price will only change and jump to the next available quote when the liquidity is removed from the first level. And limit orders or liquidity behave differently to customer-side market orders. Market orders consume the available liquidity and push the price further in the same direction. When large market buy orders go in, the price steadily goes up, meaning each order is filled at a worse price, buying higher and higher. Large market sell orders push the price down, progressively selling at worse and worse prices. Limit orders behave differently. Limit orders can only be filled at the exact price quoted, and price can't move until the full amount is consumed or removed. So if a market maker submitted a quote to sell $10 million All 10 million would need to be filled at that exact price. They do not push the price down like our market orders do. Remember, banks are playing by a different set of rules from you and I. Now let's imagine that customers are slowly pushing the price up and they reach a level with massive amounts of liquidity sell limit orders, perhaps several hundred million dollars worth. All that would happen in that situation is the price would stop. It wouldn't bounce off or reverse. It simply stops dead and goes no further until every piece of liquidity is consumed. And once it's consumed, the market goes back to normal and price continues as normal. But now you have to ask yourself, why would a market maker put massive amounts of liquidity far away from the market? The answer is they wouldn't, and they don't. Remember their business model. They are competing with hundreds of other market makers for the customer orders. The customer orders are always submitted at the market, at the best bid and offer, the live moving price you see on your price chart. That's the only place exchanges can happen. So market makers submit their small orders of 1 million at a time at both the bid and the offer, trying to be the most competitive price, always using two simultaneous orders so they can buy from one customer and sell to another and profit the spread. These are high-frequency microtransactions, giving them almost risk-free profit. They don't submit orders 100 pips away because there are no customers out there. Customers must trade at the market. And market makers are scrambling to be the most attractive price. So all liquidity is concentrated here. With hundreds of market makers competing, liquidity obviously overlaps, as we've discussed, and it can extend out several price levels, which gives us the depth of market ladder. But that only extends out around 10 pips, maybe 30 pips maximum. Beyond that, It's a vacuum. There is no liquidity whatsoever. And those are the two reasons why support and resistance and price bouncing off levels does not exist in forex. Firstly, market makers are not directional traders. They don't speculate. Their entire business model depends on buying and selling in quick succession either side of the market. All of their order activity and quotes are concentrated at the market. Not 100 pips away. Secondly, if they did for some crazy reason decide to submit a ton of orders some distance from the current price, when the price eventually reached that level, it would merely pause until all that liquidity was fully consumed. It would not and could not bounce off that level because limit orders can't move price. Limit orders absorb customer market orders. I will repeat once again that I'm talking specifically about forex. In other markets, stop hunts might happen, liquidity sweeps, dark pools of liquidity, iceberg orders, and support and resistance all may be real phenomena. But forex is unlike those other markets, and those things do not happen here. They can't. That is the most important message you need to understand. Forex is unique and is mechanically structured structured and functions in a very special way. Crucially, it is a non-speculative utilitarian marketplace managed exclusively by and for banks. All of the characteristics of other markets are missing in Forex, and the techniques and behaviors that apply in other markets are meaningless here. Remember that retail Forex is not the real interbank market. It was invented as a new gambling industry and was built on a foundation of lies and fraud, designed to take the money from your wallet. Everything you've been told about how it works and what you need to do to beat it is false. You have been intentionally deceived for their benefit. Now, I just want to clarify that none of what I say is negative. I think Forex is the best market in the world and the easiest to beat. I've been trading it for 20 years and I wouldn't trade anything else. But in order to exploit it and profit from it, you must understand it. The crowd are wrong about everything. 99% of traders are long-term losers, and it's because they all believe the same nonsense. They're playing a game they don't understand the rules to. Don't follow the crowd. They are locked in a delusional fantasy. Let's pull the curtains back and reveal the real market. Let's operate in the real world, and then you can find a real edge to exploit. That's what we'll do throughout the following videos in this series. So I hope you will click through to watch them. The next video will look at brokers and their new business models to explain why they are no longer criminal enterprises, they can be trusted, and how the service they provide can easily be exploited for our own benefit. So I'll see you there.