Never assume that the analysis you are doing is perfect, because it controls the market not you, but the owner of money.
Fundamental analysis and technical analysis are important instruments used by traders to identify price movements. In the end the results of the analysis will be used to determine the right entry point. However, how strong are the results of fundamental and technical analysis that defeats the owner of money in forex?
Let’s discuss in outline first. The technicians generally use various indicators, for example the Moving Average to determine the trend, the Oscilator to identify overbought and oversold, and Bollinger Bands to determine the Exit Level or Profit Taking. While Fundamentalists use economic indicator data and index surveys released on various sites each week. Some fundamental data that can drive prices in the forex market are labor data, inflation, consumer activity and investor activity.
The question is, is the analysis that you are applying always accurate?
For traders who have gotten the bitter sweetness of the trading world, of course they will answer no. The name analysis cannot be 100 percent accurate. For example, you use technical analysis. The price is overbought on the Oscilator indicator. You then install Sell entry in the hope that prices will plunge down. Unfortunately, the prediction missed. The price instead continues the upward trend and makes you experience floating loss.
What about users of fundamental analysis? For example, the Non-Farm Employment Change data shows greater than expected. Then, you assume that data that is bigger than expected reflects the USD going up. You then installed a Buy entry when the news release. But in fact, the USD actually drops and your Stop Loss is touched. After being examined, it turns out that there are other factors that cause this to happen, namely the action of Profit Taking.
From here it can be seen whatever the analysis, it will not be able to deal with the real power that drives the market, namely the owner of money in Forex! No matter how sophisticated technical indicators are used, or in-depth research on news, all will not be able to deal with that real power.
How does the Money Owner Move the Market?
According to the basic theory of microeconomics, to determine the price of a product in the market, it all depends on the type of market. If the type of market is a monopoly, then the price will be determined by the seller. If the type of market is a monopsony, then the price will be determined by the buyer. Whereas, if the market is perfect competition, then the price will be determined through a market mechanism, namely attraction or bargaining power between the seller and the buyer. This basic theory also applies in the forex market.
In forex trading, the law of the Buyer and Seller applies. If the buyer as the owner of money in forex is stronger, then the price will move up. Conversely, if Seller as the owner of money in forex is stronger, then the price will move down. The size of the Buyer and Seller’s strength is not determined by the number of traders making a Buy or Sell entry, but from the amount of capital or money transacted.
For example, if there are a thousand traders opening a position to sell GBP/USD with a transaction of 1 lot each, they will still not be able to reduce the price on the pair if on the other hand there are 10 traders who take action with the strength of transactions of 1,000 lots. The calculation is as follows:
1,000 trader x 1 Lot = 1,000 Lot
10 trader x 1,000 Lot = 10,000 Lot
From the calculation above, it is clear that the market would prefer to move in the position of 10 traders with a total transaction of 10,000 lots than 1,000 traders with a total of 1,000 lots. The owner of more money in forex will take precedence.
Imagine if you were a technicalist who relied on processed data in the past. After doing research with various indicators and tools, you predict that the GBP/USD pair should go down. However, because the strength of the buyer is too large, no matter how great the analysis, the price will continue to rise. So everything returns to its original pattern, namely the owner of money in forex that determines the direction of the market.
The same thing can happen to a fundamentalist. You initially struggled to do research on the news, but in the end it will lose also with the power of the money owner who entered the market at that time. Although according to the analysis, the GBP / USD pair should go down because of the impact of a news, fixed prices will be pushed up if the Buyer’s stronger is in the pair.
Black Wednesday: Real Evidence of the Strength of Market Players
History itself has proven that the power of money owners in forex can drive the market drastically. Who is the culprit if not George Soros and his friends. The richest person in the world succeeded in destabilizing the British economy by selling massive pounds in September 1992.
This action also became a tragedy for the Bank of England which became known as the Black Wednesday event. At that time, Soros and his friends learned that Britain was being hit by high inflation, and the property sector had decreased significantly. Soros, Goldman Sachs and his friends then took short actions or sold Pounds on a large scale.
The Bank of England seeks to reduce this attack in various ways, but fails. Eventually the pounds bend and fall to the range of 2.20 DM. This event made Soros manage to collect profits of approximately 1 billion dollars. While the British Government reported a loss of up to 3 billion pounds.
From the true story, it can be concluded that only money owners in forex can move the market. Not fundamental or technical analysis. Can events like Black Wednesday happen again in the future? Yes, it is possible, but it is likely to be difficult to do it, because in this modern era the owner of money in forex that becomes a Big Boss is not only held by one party.
How to Anticipate?
After reading the explanation above, you can see that the price movements in the forex market cannot be predicted that easily. Even though you have used even the most sophisticated technical and fundamental tools, you still won’t be able to deal with money owners in forex with the most funds. Then what should traders do with capital as low as tens of dollars to hundreds of dollars, in addressing this? Following are the steps:
- Traders with mediocre capital certainly will not be able to move the market significantly. Because of that, like it or not, you have to trade by following the trend (trend following). To find out the current trend on the market, please draw a trendline, or channel. From here, you will be able to find out whether the market is in an uptrend, downtrend, or sideways condition.
- Another way is to look at the patterns on the candlestick. Don’t get bored listening to candlestick forms, because candlesticks are a reflection of the strength of the Buyer and Seller that drives the market. There are many candlestick patterns, ranging from the pattern of one bar, two bars, three bars, and so on. Examples of popular candlestick patterns include Pin Bars, Inside Bars, Evening Star, Morning Star, and so on. In its application, for example, you see a candlestick that forms a pattern in the Inside Bar. This pattern appears when there are two candlestick bars, where one of the rods is smaller and is between the range of the mother bar.
- No one knows whether prices will go up or down. You might have anticipated it by using a number of indicators, but the results are still wrong. The price turns out to keep moving against predictions. It even looks farther away. If this happens, then be encouraged to do Cut Loss. Think of the lost money as your trading operating costs. However, never do Cut Loss when you panic. Check the signal again indicated by the candlestick pattern or indicator. In other words, do Cut Loss with considerations that are really mature. Don’t panic when you see the floating minus that is too big, you exit blindly. Who knows floating minus only happens temporarily, before finally the price will move according to the prediction.
From here, it can be understood that the analysis that you have been studying so far is only based on past data. When using it to identify prices in the future, not necessarily the results can be exactly the same. It can even be far beyond expectations when many money owners turn out to be in positions opposite to your direction. No matter how good the analysis is, the owners of money in the biggest forex will be in power. So, don’t rely too much on 100% on the results shown by technical or fundamental indicators. Use indicators as a means of identification only. The rest, follow the trend and read price movements through candlestick patterns. And, don’t forget to do Cut Loss wisely.