Structure of Financial Markets

ba salam va khosh amad khetmare hameyi dostan aziz.

Welcome to all friends .

Financial markets are markets where financial transactions are conducted. Financial transactions generally refer to creation or transfer of financial assets, also known as financial instruments or securities. Financial transactions channel funds from investors who have an excess of available funds to issuers or borrowers who must borrow funds to finance their spending. Since the early 1970s, financial markets in various countries have experienced significant development. As a result, world financial markets are larger, are highly integrated, and have a wide range of financial instruments available for investing and financing.


THE STRUCTURE OF FINANCIAL MARKETS
Financial markets comprise five key components: the debt market, the equity market, the foreign-exchange market, the mortgage market, and the derivative market. From the 1980s, each component market has been expanding in size, and an extensive array of new financial instruments have been initiated, especially in the mortgage market and the derivative market.
Debt instruments are traded in the debt market, also often referred to as the bond market. The debt market is important to economic activities because it provides an important channel for corporations and governments to finance their operations. Interactions between investors and borrowers in the bond market determine interest rates. The size of the world bond market was estimated at around $37 trillion at the start of 2002 (all currency figures are in U.S. dollars). Bonds denominated in dollars currently represent roughly half the value of all outstanding bonds in the world.

http://www.forexful.com/files/images/education/forex-market-hierarchy.png
http://www.forexful.com/education/forex-basic/forex-market-structure#.XHKr_-hvZqM
https://bpcdn.co/images/2016/05/pre-school-decentralized-market-thumbnail.png

Until the late 1990s, only the “big guys” could play this game. The initial requirement was that you could trade only if you had about ten to fifty million bucks to start with. Chump change right?

Forex was originally intended to be used by bankers and large institutions, and not by us “little guys.”





However, because of the rise of the internet, online forex brokers (http://www.babypips.com/school/kindergarten/choosing-a-broker/different-types-of-brokers.html) are now able to offer trading accounts to “retail” traders like us.
Without further ado, here are the major forex market players:
1. The Super Banks
Since the forex spot market is decentralized, it is the largest banks in the world that determine the exchange rates.
Based on the supply and demand for currencies, they are generally the ones that make the bid/ask spread that we all love (or hate, for that matter).
These large banks, collectively known as the interbank market, take on a ridonkulous amount of forex transactions each day for both their customers and themselves.

A couple of these super banks include Citi, JPMorgan, UBS, Barclays, Deutsche Bank and HSBC. You could say that the interbank market is THE foreign exchange market.
2. Large Commercial Companies
Companies take part in the foreign exchange market for the purpose of doing business.
For instance, Apple must first exchange its U.S. dollars for the Japanese yen when purchasing electronic parts from Japan (http://www.babypips.com/school/undergraduate/sophomore-year/country-profiles/japan.html) for their products.

Since the volume they trade is much smaller than those in the interbank market, this type of market player typically deals with commercial banks for their transactions.

Mergers and acquisitions (M&A) between large companies can also create currency exchange rate fluctuations.
In international cross-border M&As, a lot of currency conversations happens that could move prices around.

3. Governments and Central Banks
Governments and central banks, such as the European Central Bank (http://www.babypips.com/forexpedia/ECB), the Bank of England (http://www.babypips.com/forexpedia/BOE), and the Federal Reserve (http://www.babypips.com/forexpedia/Fed), are regularly involved in the forex market too.
Just like companies, national governments participate in the forex market for their operations, international trade payments, and handling their foreign exchange reserves.
Meanwhile, central banks affect the forex market when they adjust interest rates to control inflation.

By doing this, they can affect currency valuation.

There are also instances when central banks intervene, either directly or verbally, in the forex market when they want to realign exchange rates.
Sometimes, central banks think that their currency is priced too high or too low, so they start massive sell/buy operations to alter exchange rates.
4. The Speculators
“In it to win it!”
This is probably the mantra of the speculators. Comprising close to 90% of all trading volume, speculators as forex market players come in all shapes and sizes.
Some have fat pockets, some roll thin, but all of them engage in the forex simply to make bucket loads of cash.
Don’t worry… Once you graduate from the School of Pipsology, you can be part of this cool crowd! Of course, how can you be one of the cool cats if you don’t even know your forex history?

The first module, Technical Analysis 101. On this lesson, we’re going to teach you how to learn and how to understand market structure. This is very important and it is, in fact, the most important thing about technical analysis. What is market structure, guys? Market structure gives us bias to look for trading opportunities, if you don’t understand the market structure, we are basically technical analysts that don’t understand technical analysis. This is because understanding market structure is the very core of understanding the way the market moves and how cycles interact with each other. For example, in a bull market, we always look to buy dips. If you don’t understand market structure, we will never understand that we are in a bull market and maybe we will be looking to buy puts in a bull market, which is a no. In a bear market, we always look to sell rallies. In a bear market, you sell into strength. In a bull market, you buy into weakness. This is how you trade. This is how trade is made simple. You follow the trend and you buy into weakness and you sell into strength, but you need to understand what is market structure. Also market structure gives you market directionality. This is what we already said. The bull market, price is making higher highs and lower lows. This is the basic market structure of a bull move. In a bear market, price is making lower highs and lower lows. This is the basic structure in a bear move. In between these bull and bear moves, we have cycles that interact with each other. Market cycles are shifts between bull and bear moves, because remember, guys, that even if we are in a bull move, we are going to have retracements off that bull because we are making higher highs and higher lows. We need to make a low, so we need to retrace a little bit. When we retrace a little bit in a bull market or in a bull move, we are going to break with the immediate market structure. Let’s have a look at this. In an overall market, in an overall bull market, a retracement would mean a break of the immediate structure for a bear cycle. This doesn’t mean that we are going to sell that top and to short it right there. This means that we are going to wait for the bear cycle to finish for us to be able to buy that dip.

Cute pics..like your presentation!

Hi

Here I come with another educational post. This time I will try to explain the breakout failure pattern along with the psychology and manipulation behind them.

For the sake of simplicity, I am taking examples of historical support and resistance (https://in.tradingview.com/ideas/supportandresistance/) levels. I will only explain the breakout failure pattern assuming that the breakdown pattern will be read upside down by the readers themselves.

Ok..let's begin.

THE BREAKOUT FAILURE

I hope everybody understands what is a historical support. Simply put, its a point where the price has taken support and bounced multiple times.

Now that we have a support level (https://in.tradingview.com/ideas/supportandresistance/) , some bigwig buyers will be interested in buying at that level. Generally these are FIIs and DIIs who want to put millions of Rupees into that stock at that particular level. But the problem for them is that, they do not have enough supply/sellers at that support level (https://in.tradingview.com/ideas/supportandresistance/) to meet their requisite demand. Why? because its a support level (https://in.tradingview.com/ideas/supportandresistance/) and nobody is interested in selling at support..right?

Now that's how they cope with this problem...the manipulation.

The Institutions have resources to manipulate hope you understand coz I dun wanna delve much into that in this article. In simple words I would just say that they have the power to push the price beyond certain levels.

Ok now that we know the basic stuff let's get on to the chart.

In the chart (Fig.I), the price bounced from the support multiple times thus forming a historical support. At point A, retail buyers were convinced that the support is valid. They also saw a bullish (https://in.tradingview.com/ideas/bullish/) candlestick (https://in.tradingview.com/ideas/candlestick/) pattern and executed their buying orders with stoploss just below the support level (https://in.tradingview.com/ideas/supportandresistance/) . This scenario fetches a lot of supply (sell orders/stoplosses) below the support level (https://in.tradingview.com/ideas/supportandresistance/) .

The price proceeded up for a while (due to desparate retail buyers) before the manipulator steps in. Now the manipulators only job is to push the price down so that retail stoplosses get hit (point B). As soon as the support is broken (sometimes by just a few paise) the stops are hit (opening big supply door for Institutions). At this time the breakdown short sellers also step in to further fuel the supply--the supply which fills the institutional demand. As soon as the institutional buyers absorb the supply, there would be no more sellers interested in selling, the bids start pushing the price higher. At point C the pull back sellers step in, further absorbed by the institutions.

Now we have the breakout sellers and pullback sellers who have put their stops just above the historical support. Now the manipulator has another job to do--to hit a buy stop. As as soon as it happens the price shoots up. Here the traders like me watching charts whole day long, looking for such lucrative opportunities, place their limit orders just above the short sellers sulking edge--the point C.

For me in such a setup, the most important thing is searching for the C point.

At every uptick the short sellers would be forced to cover, pushing the price strongly in upward direction and ending the story.

Same is true for breakdowns.
Trust me, nothing works 100% but somethings gift us with higher probability.
I ll try to post some examples. But for that I need a better response.

I hope that with this pattern, some traders will be promoted to a smarter category.

Regards.

A good trader would do some analysis post market, some do it in the evening while the others at night but the time of analysis does not matter. He searches for his favorite setups on higher time frame charts and look for potential opportunities. He takes down only those trades which qualify his risk appetite. Opportunities with 1:2 or more risk to reward ratio are normally good for consistent traders.
The trader sits patiently and wait for setups/strategy to complete and looks into lower timeframe charts to finetune his entry if possible.
Discipline is followed for exits and stops, which are not moved (few exceptions) after the trade is initiated.

If the trader follows the above tenets but a trade turns out to be a loser, I would definitely call it a Good Trade because he followed the right process. One needs to accept that in trading business one has no control over the results but the process.

Post analysis helps the trader to know his weaknesses. He notes down his weaknesses after each trade and plans what he can do about it.

A Bad Trade

A Bad trade is exactly the opposite of a good trade. None of the above traits are followed. The trader takes position chasing a breakout or trades a pullback coz prices are lower. No proper setups are followed and risk reward ratio is poor. Stops are moved when they are about to hit and profits are taken before targets are reached. With this type of trading, the trader can not survive the market for long. Soon he bursts his account. The trader is so desperate after watching his PnL that he can't even post analyse his trades in frustration. This only
reflects that he is not learning, he just wants money. But the truth is that learning is an ever ending process in any field.

If the trading process is not followed but a trade comes out to be a profitable one, I will definitely call it a Bad Trade.

Trading Performance:

One should never judge his trading potential just on the basis of few losing trades. Losses are part of trading business (but only if one is taking it as a business and not Casino). Few losing trades are just part of those hundreds trades that one will take in future. So with the right trading process, the chances are rare that a trader ends up as a loser after those few hundred trades. For that one surely needs to assess his trading strategy and psychology at least every three months, for early improvements.

Hope above information from my experience will help some traders to overcome failures and the other to improve their trading.

https://www.youtube.com/watch?v=b5a5YVeHYUs&t=141s

https://www.youtube.com/watch?v=6jvqOiU15bw&feature=youtu.be

Thank younso muchbfor starting this kind of thread...great simplified presebtations,pictures and colours.

The analytical eloquence should always be based on the timing of the frames from the top to the bottom, so that the probability of self-realization is high

nice thread @clay.fxp already subscribed :-)