The value of knowing where the forex orders are
How to use forex orders
Back in the day a learned friend used to opine that “the only good order is an order you have yourself”. The rationale being, that hearsay is often less than perfectly accurate. Even more relevant to bigger orders is the truism that the market is curious.
If, for example, there is talk of a mammoth bid in, say the EUR/USD at a certain level, the market will often drift to that level to have a look, just to see.
What can happen and sometimes tends to happen at these levels is what is important. The person with the order may buy EUR/USD just ahead of the level, knowing that he has a ready made stop-loss in the shape of his corporate bid. All well and good. However when word of the order spreads around the market, often others try to do the same thing. Lo and behold, the market will seem to be respecting the mentioned level. So far great. A small bounce in the EUR and our merry traders take profits. Rinse and repeat.
Price action confirms orders
Here is the danger. Only one person in the scenario above has a ready-made stop-loss. Once “loaded up” with EUR all the longs will be looking to take profits on a bounce. When the market is liquid that bounce can happen more than once. But as you can see all of a sudden, there is a source of supply just above the bid level. That source of supply is “all-round” meaning more than one bank is offering out EUR/USD.
Pretty soon the market will find it tough to exceed the profit taking level. What happens if the original corporate bid is pulled? Now the market is long with no ready-made stop-loss, and at least one failure to bounce beyond the profit taking level.
What happens if the original order’s size was exaggerated? The play along size could well be bigger in total than the corporate bid.
The lesson from all this is that we should always be confident in the source of our market intelligence, and, rather than blindly joining in with anecdotal reports of bids and offers, we should always pay attention to the price action, particularly at these highlighted levels.
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