How Institutional Traders Use Trading Signals
Retail traders tend to overcomplicate their lives. They try to be, at the same time, analyst, risk manager, trader, business manager…but the reality is that with (often) limited time at their disposal, this multitude of roles creates a heavy burden and often leads to analysis paralysis.
Professionals realize this, and that’s why they often outsource their analysis, in order to focus on their core role as traders. Our Active Trader Signals are where the rubber meets the road. These signals have been used by major banks, hedge funds, institutions and high net worth individuals for over 10 years.
Here is how the pro’s keep their trading clear, concise and consistent.
Objective and Independent
Institutional clients are tough to please. In order to meet their standards, you would need:
- non-mainstream ideas or analysis (because obviously they already know what the consensus’ view is)
- a consistent and objective methodology (no interpretation required)
- a solid track record (the longer the better)
- credentials (institutions are naturally skeptical of retail providers).
Our Active Trader Signals providers meet these criteria. Steve & Alan have over 30 years of experience working on the Forex, fixed income, and equity desks of major banks. Then, in 2007, upon request of some of their top clients, they formed a small bespoke technical analysis firm providing trading signals to institutions. Their client list of around 40 major banks and hedge funds reads like a who’s who of the interbank foreign exchange market.
Over the years, they have achieved an impressive track record specializing on capturing the first move during the London morning session. Note that this is a very specific and measurable objective and they have a 70% long-term hit rate of their calls.
Here is an example of trade call on EURUSD from yesterday.
And here’s the result. Remember that the key objective of the Active Trader signals is to capture the first move out of the blocks during the European morning session.
Learn their Technique
Do you think it’s possible to exploit this kind of analysis? Institutions sure think so. At the end of the day, most analysis (that institutions now have to pay for, with MIFID II) is some form of opinion and everyone has an opinion. Once again, opinions only mean something if they are backed by a successful track record.
Also, most analysis is based on macroeconomic developments and is thus longer-term. It may even be right in the end, but the short-term fluctuations can cause more pain than your account can withstand. That’s why institutions pay for short-term and medium-term price-based views. It’s not about copying the trades. It’s about having trusted information that allows to make effective trading decisions in the short-term and (potentially) hedge against longer term views that are yet to produce any benefit.
Steve & Alan produce purely technical trade calls, which allows for and objective and consistent process. Technical analysis reflects human emotions: patterns repeat themselves but you do need experience to know when to apply certain crtieria and when not to. For this reason, to complement the Active Trader signals, we have a Technical Analysis portal where Alan explains the clear and concise technical tools that they use in order to create their forecasts. With the 10 videos in this series, you can learn the tools of the trade while you follow their signals.
Use Signals Wisely
Institutional clients are not interested in copying trading signals “as is”. They are interested in the process behind the signals, the objective of the signals and the track record. After all, traders that work for funds and institutions already have their own models and have a decent understanding of market dynamics.
So why would they pay for a further source of trade ideas? Here are some reasons, given by actual clients of ours:
- Getting a second opinion from a reliable source. We’re talking about the confidence that comes with consistency. If a trader feels unsure on any given day, having an independent and reliable second opinion can help.
- Diversification. Steve & Alan specialize in short-term movements, which can complement the work of a medium-term or long-term trader.
- Getting back into a trend after a retracement.
- Using the calls as a general “bias”, and overlaying your own entry tactics on top.
- Identifying potential reversals in a consistent manner. This is a big one for retail folk, that gravitate towards the “Fade” mentality, always trying to pick tops & bottoms. At least this way retail traders would be doing so with some robustness.
We Lead by Example
It should be clear by now why our signals are built with an educational slant.
Many aspiring traders seek trading tips, trading signals or expert-advisor generated signals in order to copy them without any consideration for the “engine” that generates the trades, the risk-adjusted returns of the model and often have no intention of learning anything about the markets as well!
Traders that do not invest in their own education, and actually want to learn how the markets function and how to “play the game” consistently will have a hard time. Unless you have:
- the same degree of risk aversion
- the same preparation
- the same strategy
you cannot understand why we are trading a particular instrument at that particular time, and why our stop loss is positioned at a certain distance from entry.
This is why we exist. Through our trading signals, not only do you get trades with an edge, but you also get to be exposed on a day-to-day basis to the thought processes and methods of some of this generation’s premier traders. And you get this in the context of a complete trading frame-work that teaches you all the elements of successful Forex trading – as any good trader will tell you, the actual entry is only about 10% of the equation.
Also, given your risk appetite and objectives, you can modulate your position sizing. This gives you a significant advantage over using some form of copy trading service or managed account because you retain control of the elements of your trading strategy that generate the returns. It’s the “how much” you trade that matters, far more than your actual entry. Think about it. Emulate the practices of top traders:
- Carefully construct your position-sizing model to achieve your objectives
- Have a comprehensive risk management frame-work
- Swing big when the stars align
If you give up these elements, then you give up much of the power in your trading. Instead it’s much better to follow and model the practices of experienced practitioners who have, over the years, mastered this practice on a very subtle level. Finally, we want you to understand what we’re doing. The role of the Trading Tribe is to act as a support group for the traders involved. As another Market Wizard said, “trading is 100% psychology” and it’s being a part of our group that you can understand, inquire, and learn why and how we do what we do.
Over to You
Our Active Trader Signals are dedicated to seasoned traders that want to diversify, but are also useful to less experienced traders who wish to educate themselves – through immersion with our team and the technical analysis portal – by learning a clear, concise and consistent trading model. But that’s not all. By being curious and embracing the trading tribe concept (pioneered by Ed Seykota, Market Wizard) you gain access to information.
Even Bill Lipschutz, “the Sultan of Currencies” admitted that “Foreign Exchange is all about the flow of information”. It’s difficult to compete with traders who can:
- Source trades through a mixture of technical and market factors, using proprietary trend and mean reversion models to aid in the decision making process.
- Through his contact network, acquires market and analytical information.
- Brings together technical, fundamental and information based insights to generate trade ideas.
So why not “outsource” your entry and exit rules to the people in a better position to provide accurate and timely trades? Free yourself of any mental constraints that limit your performance, and use the advantages available to you.
Your trading will never be the same, for the better.
About the Author
Justin is a Forex trader and Coach. He is co-owner of www.fxrenew.com, a provider of Forex signals from ex-bank and hedge fund traders (get a free trial), or get FREE access to the Advanced Forex Course for Smart Traders. If you like his writing you can subscribe to the newsletter for free.
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