Transcription
In this video, I will show you the difference between institutional buying and retail buying. By the end of this video, you will be able to identify when institutional traders are accumulating their positions and the exact levels that they are doing it.
In my earlier days of trading, I recall wondering why some levels were difficult to break or other levels seemed to be broken so easily. I was particularly interested in the telltale signs of a strong level. So I did what most of you guys did. I studied books, came out with various theories, and backtested it. And that got me started on this journey. It was never my intention to learn how to identify institutional buying or selling, but as I embarked on this journey, I came to understand that what makes a level hard to break is whether the big institutional players are defending it or not. So obviously, your goal is to identify these levels and try to enter trades at these levels so that you can profit massively alongside the institutional players.
I'm going to break down how you can identify institutional buying or selling into an exact science in this video, and I'm gonna show you precisely what you need to watch out for. Sounds good? Then go ahead and smack that like button because what you're about to learn is a concept that took me more than 10 years to figure out. So here, come on. The least you could do is to smack the like button and subscribe to this YouTube channel. We are also doing our giveaway to our premium Forex signals, which we usually charge $99 a month for. So if you want to participate, look for an emoji throughout this video. Once you find that emoji, like this video and comment on what the emoji is plus win Forex signals in the comments section. We will now see lucky winners in the next video. So make sure you subscribe to the channel and hit the notification bell to know when the next video is released and whether you have won.
So right here, we have two charts. One represents institutional buy, and another represents retail buying. I'd like you to try and identify which is which. Go ahead and pause the video if you must. And here's the correct answer. Don't worry if you got it wrong because I will explain the differences in depth. So keep watching.
We will use three criteria to help us accurately distinguish between institutional buying and retail buying. You want to use these three criteria as a lens to evaluate levels in the market. The first criteria is how much time the price spends at a level. If price spends very little time and takes off strongly immediately, it's an excellent sign that institutional traders are coming in big on that level. On the contrary, if you see that price is struggling and consolidates a long time at a level, that's a sign that the institutional traders are not stepping in to defend the level. Let me explain why this is so. Well, if institutional traders are trading off this level and acquiring big positions, then price shouldn't need to struggle. Whatever volume available at that level should they quickly scoop up. Think of it this way. You head to a supermarket and you see your favorite beer selling at $5 instead of $25. Would you rush to scope as much of it as you can? Well, that's the same mindset here. So the first criteria deals with how much time the price spends at a level. And if you are asking what constitutes a long time, you can apply the six-candle rule, meaning if the price consolidates more than six candles at a given level, it doesn't represent institutional buying or selling. Here are a couple of examples to help you better understand the first criteria. In this chart, we see price bouncing off the support rather quickly. Price didn't spend much time consolidating at the level and took off. This is a clear sign of institutional buying. Here's another chart. In this case, we see price behaving rather sluggish and doing nothing on that level for some time before eventually being broken. It's important to note that there will be instances where price consolidates for a long time and eventually takes off. But remember, we are dealing with probabilities, and there are two additional criteria that you need to evaluate a level with based on experience. The first criteria isn't enough, and you need to apply the two other criteria. So make sure to keep watching to find out what they are.
The second criteria is the strength of departure. So earlier on, I explained that you want to see price bouncing off a level quickly. That deals with the time aspect. But for the second criteria, we want to pay attention to the speed aspect. Time is measured in candles, but speed is a function of time and distance. When we say a car is traveling at a speed of 60 miles per hour, notice that we say the distance per time period. Specifically, we want to pay attention to how price bounced off the level. Did it bounce off the level explosively with a single candle that covered 467 pips, or did it bounce off the level slowly with 12 candles that covered 283 pips? Sometimes it might be a flag present where price consolidates from the level slightly before resuming its trend. You want to avoid trading these and going against the trend. Other times, it might be a strong departure. This is an example of a strong departure. This is what you want to see. You want to see big extended range candles that close near the top or bottom of the level. The rationale for this criteria is also very similar to this supermarket example that I talked about earlier. If institutional traders were trading off the level, you should expect the market to move strongly off the level, not sluggishly. Here are a couple of examples to show you the difference. Here, the departure of the level is very strong. You can see that price rallied sharply after hitting this support level. This tells you that institutional traders were buying here. The time spent at this level is also less than six candles, so this complies with the first criteria as well. In fact, this particular example also complies with the third criteria, which I will reveal shortly, so keep watching. Here's another example of a weak departure. If you look closely, the price was forming a flat pattern, and look at what happened to the price afterward. It resumed its downtrend. And the last example here is a rather unique scenario. We have price bouncing off the level rather quickly. However, note that the departure was weak. Observe what happened afterward. This is why I stress the importance of applying all three criteria. You don't just want to watch this video, get excited about the first or second criteria, stop watching this video, and jump into the charts. I know I keep repeating myself, but you have to apply all three criteria in your evaluation. I can't stress this enough.
So let's jump into the final criteria, which is the minimum base to distance ratio. Criteria number one deals with time. Criteria two deals with speed, which is time and distance. But I didn't provide you any guidelines about the magnitude of that distance. What constitutes a good distance? How do you know that this departure is strong by looking at the distance it covers? Well, the third criteria covers this. When evaluating the distance or departure, you want to see a minimum base to distance ratio of 1:3. This means that if the base is 25 pips wide, you want to see the price take off at least 75 pips away from the level before concluding that the level is strong. So here's the part you want to listen closely to because I'm gonna show you how to determine the base. Get this wrong, and your conclusion about the validity of the departure will be inaccurate. So it is very important that you listen closely. To determine the base, look at the candle before price takes off. You want to use the candle's body to plot out the base like this. Now, depending on the scenario, you might use the open or close of the candle. Already, the rule of thumb is to choose the option that results in a bigger base. So if the open results in a bigger base, then use that. But if the close of the candle results in a bigger base, then use that instead. Here are a couple of examples to help you understand what I mean. We have price forming an engulfing candle here before taking off. So we take the previous candle and plot the base like this. And over here, we have a piercing candle pattern before price exploded. So we look at the previous candle and plot the base like this. You can see that I've always chosen the open or closed that results in a bigger base. Make sure to cover the wicks as well. Now that you know how to determine the width of the base, let's go ahead and apply this third criteria on the charts. Here you can see that the base is 30 pips. Price went on to rally more than 90 pips, which exceeds our minimum base to distance ratio of 1:3. In this example, based on this criteria, this qualifies as institutional buying. But remember, we still have the other two criteria. I will now put all three criteria together, so keep watching.
If you want to identify institutional buy and selling, at the start of this video, I showed you two charts, and I'd like to show them to you again. Can you now see why this is institutional buy and the other is retail buy? Here's the chart that represents institutional buy, and another that represents retail buying. On the left, we see that price didn't spend much time bouncing off the level. That fulfills criteria one. Price then explodes and produced a couple of extended range candles. That fulfills criteria two. And lastly, these candles covered a distance of at least three times the base before it started retracing a little, fulfilling criteria three. On the right, we see the opposite, with price spending a lot of time consolidating at the level. There are more than six candles, and this violates the first criteria. Price also didn't explode in a single direction and merely consolidated at the level. We also do not see price covering a large distance, as price eventually broke the level. So hopefully, you can now contrast between the two.
Before I sum up and end on this video, I want to remind you that trading isn't always black and white. Often, you will find scenarios that fulfill criteria one and three but not two, and other scenarios where price only meets criteria three. So use your best judgment or stick to the scenarios which are very clear. To sum up, the three criteria to determine institutional buy or selling is how much time price spends at a level, the strength of departure, and the minimum base to distance ratio. And that's all I have for you in this video. I hope you got value. Remember to like this video, subscribe to the channel, and comment with the emoji plus wait for Forex signals to enter yourself into our giveaway. The winner will be announced in the next video. So turn on the notification bell and check to see if you have won. Thanks for watching.
If you want to learn how institutional traders combine leading and lagging indicators, I have another video teaching you how they do it. So click the video end screen here to check it out.