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5 – Institutional Vs. Retail Traders

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5 - Institutional Vs. Retail Traders

 

 

Before we have a deeper look at fundamental analysis we feel it’s important to point out the major differences between institutional traders from retail traders.

In this section we will talk about the two different types of traders, what their differences are, and why you might want to consider trading and approaching the Forex market like one over the other.

 

In this Article

  •         What is a Retail Trader?
  •         The Obstacle with Trading Education
  •         The Two Blokes Secret to Mastering the Forex Market
  •         Interesting Statistics of Retail Traders

 

What is a Retail Trader?

The chances are that if you reading this guide then you are probably a retail trader.  Or maybe you are looking to become a trader and are you are doing a bit of research before you dive in head first.  This is by design because we created this guide specifically for the retail market.

Our goal is to help retail and home traders gain a glimpse into how the large funds and investment houses trade the Forex market.  Hopefully everyone who takes part in this journey finds something of value that will add meaningful and measurable results to their trading performance.  If you learn this material and then put it into practical application over time it will be pretty hard to fail.

Retail traders are typically normal everyday people who have jobs outside of the FX space.   Sometimes they are small business owners who are looking for a way to make a little extra money in their spare time.

For many retail traders it is their goal is to become a full time trader so that they can enjoy the freedom and flexibility that comes along with a Forex trader’s lifestyle.

As far as the lifestyle goes you do need to be trading at certain times of the day to be a part of the best trading opportunities.  But you certainly can be anywhere in the world as long as you have a trading platform, laptop, and a stable internet connection.

Retail traders usually get their trading education by searching the internet for the latest and greatest system.  Some of these systems are selling the dream of making millions for a small one-time fee. Now, this is not always the case and there are plenty of great places to get quality education.  However, sometimes they may not make it known that there is a lot of hard work involved.

Because retail traders mostly find their trading education online it’s almost inevitable that they start their career by utilizing some sort of technical analysis system that uses past price behaviour, indicators, or patterns that attempt to predict future price action.  This is because the internet is flush full of technical trading education and trading systems based on technical analysis.

We are not saying that all online education is bad because that is not true.  But the most credible places to get information are the ones that have been around a long time consistently delivering high quality content…kind of like the Two Blokes!  Apologies for the shameless plug!

If you do a quick Google search to find Forex trading education you will find all kinds of technical analysis systems, algorithms, and indicators.  Even if you do a search for hard copy books you will no doubt find most of them focus on some form of technical analysis. A lot of times it’s the same things packaged up with different names.  The same goes for weekend seminars and webinars; most of them focus on technical analysis.

 

The Obstacle with Trading Education

The obstacle with trading education courses is that many of them are missing some of the key ingredients that will help you achieve your goals.  A lot of times you only get a one sided education in technical analysis. To get a well-rounded education you should be versed in fundamentals, sentiment, risk management, trading psychology, price action and of course technicals analysis.

This is not to say that technical analysis products are the only subject out there related to trading.  There are absolutely lots of great websites and books that focus on trading psychology or risk management.

However, these seem to be in the minority and can be difficult to find high quality content.  It’s almost impossible to find any information about trading fundamentals and sentiment that is geared to the retail market.  If you do find any fundamental information it’s likely that it is an academic study with no real practical application to day trading the Forex market.  That is exactly why you need to stick it out and commit to learning everything in this guide.

 

The Two Blokes Secret to Mastering the Forex Market

At this point we are going to let you in on the secret to mastering the Forex Market.  Trading is a skill where you need to learn many moving parts; no one is going to argue with that.  It’s not enough to say that you are a pro when it comes to knowing everything about technical analysis.  Most everyone knows technical analysis these days so it’s really not much of an edge.

Ready for the secret?  You need to become proficient with:

  1.    Fundamental Analysis – We got your back home boi!
  2.    Sentiment Analysis – We’re here for you girlfriend!
  3.    Risk Management – go to Amazon and type in “risk management Forex” and you will find what you need.  Or email us and we will make another training on risk management!
  4.    Trading Psychology – Think Dr. Brett Steenbarger, and Mark Douglas.  Go Google them and buy their stuff now…do it!
  5.    Price Action – Think Elliot Wave and Fibonacci.  Again, off to Google or Amazon you go!
  6.    Lastly……Technical Analysis – You probably already have this more than covered.  If not, there is a lot of great free resources on the internet. We will probably release some info on this if you command us to 😉

The first 4 are the most important and should make up something like 80% of your trading.  We have found that technical analysis is most valuable as a timing tool for entries and exits.  This is how the majority of institutional traders approach trading in the Forex market.

 

Interesting Statistics of Retail Traders

What is really interesting is that retail traders typically use something like 95% technical analysis in their trading.  Some will also use risk management and others will work on having a proper trading psychology. But certainly very few retail traders are using fundamentals and sentiment analysis.

Fundamentals and Sentiment are what actually cause prices to move in the Forex market.  Prices do not move because of technical analysis or squiggly lines on a price chart. Surely most people will agree with this logic.

It is a well-known unfortunate statistic that 95% of retail traders fail and lose money overall.  Sadly, 95% might be a conservative estimate. At the same time these same retail traders are using 95% technical analysis to guide their trading decisions!

Really think about that for a moment and let it sink in.  95% of retail traders fail and lose money over the long run while at the same time 95% of retail traders use technical analysis exclusively to make their trading decisions.  Isn’t that an amazing thought? 95% of retail traders lose money and the same 95% of retail traders use technical analysis systems to trade the market. Huh. Is it possible that technical analysis alone is not enough to trade successfully in the Forex Market?

This is about the time you should have a light bulb go off in your head.  If you didn’t just have an aha moment please read that last paragraph again.  The failure statistics of retail traders directly matches up with the percentage of retail traders that use technical analysis alone.

What it all boils down to is that the main focus of retail traders is typically some sort of system that is based on 100% technical analysis.  It could be a manual trading strategy or it could be some kind of algorithmic strategy but it’s definitely technical in nature.

Up Next:

Alrighty, in the spirit of not making this one post too long let’s get you over to the next article where we learn more about institutional traders and what makes them tick.


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