ForexSpirit

Chapter 13 in Alexander Elder’s ‘Entries & Exits’ exemplifies the advantage that the large players in the forex market can have over the small retail trader. This chapter details some trades performed by Peter Tatarnikov who works for the largest forex broker in Russia. The broker’s name is not explicitly stated in the book, but they are mentioned as the developer of their own trading software entitled Rumus.

Peter demonstrates some trades using an indicator called the Forex Club Sentiment Index which is derived from the open positions of the clients at this brokerage firm. The indicator’s forumla is pretty simple: it is the percentage of the number of long positions in a given currency relative to the number of all positions open for that currency. When the indicator is at a high value, say 80%, it means that 80% of open positions are long for that currency. Peter then uses that indicator to trade against the crowd, with the core postulate of his trading plan being that the majority of traders are wrong. In effect, it is an overbought/oversold indicator. Even though his broker’s clients are only a small subset of the overall number of clients trading a given currency all over the world, the broker has enough clients for the reliablility of this indicator to be representative of the market as a whole (within a statistically small enough margin of error that they are comfortable with). Peter is able to use knowledge of what the overall position of all the broker’s clients is at any given time so as to trade against the majority position for any currency.

There is not exactly a lot that the small retail trader can do about this sort of practice, except to recognise that not all traders have access to the same knowledge. The large players in the market will generally have access to information faster than the small fry, and maybe even access to information that is never widely disceminated. Insider trading in the forex market is a fact of life, and should be recognised as such. Wasting time and energy on the injustice of it all will not help in turning you from a losing trader into a winning one. You must be able to recognise which battles are worth fighting, and this is not one of them.