Where are big banks buying or selling?

FX brokers show only the orders of their liquidity providers and clients on L2. You are right that "talk of banks sitting here or there is just talk". That is why I said that you must have confirmation form the price action or quotes. I think it is worth it to try to trade with the big guys. If you are right you have great R/R.

I just figured out why level 2 quotes do not matter in forex at all. If you take a look at this paper: http://www.norges-bank.no/pages/9488...er_2013_12.pdf you will notice why.

Paper talks about who is the most successful trading forex, corporates or financials. We can hypothesize without even reading a paper that corporate clients lose money vs big banks. I asked myself if big banks would submit the information for all of us to see when they are trading for their own account - the answer is no. However when they are trading for their customers' accounts they do submit this info, because a corporate client needs to sell or buy regardless of the exchange rate. So bottom line, if you use level 2 quotes you would be more successful if you use the level 2 quotes as a contrarian signal.


If you don't feel like reading the whole thing, go to page 21 'who is informed'... I suggest you read the whole thing though.

They also say retail traders lose money - on average, so there is still hope for the few of us..........

The paper/section talks about whose "order flow" tends to predict future prices on certain time horizons, not who is successful in trading forex. Corporates don't tend to "trade" (that's not to say they won't make good/timely decisions about when to do fx transactions), so you can't say they "lose" - they do what they have to do to meet their objectives. It is very unlikely you'll be seeing "corporate" orders in the book because a dealer will trade with them directly and then try to offload the position in the market for a profit.

So I disagree with your conclusion (which you can't have realistically come to as you've yet to see an fx DOM), as if it can be used as a contrarian indicator then there's an edge to it - but as I already said, you don't get T&S so you won't get any info from the bullshit they do decide to display on the DOM - which is basically just a smooth, information-less, algo-populated "book". In fact I can get more info watching a futures DOM without T&S than an fx DOM, because the market is centralised so I can see everything, but you do get T&S as well of course. If you want to read the tape then trade futures.

BIS Working Papers No 405: Information Flows in Dark Markets: Dissecting Customer Currency Trades, Lukas Menkho, Lucio Sarnoz, Maik Schmeling, Andreas Schrimp http://www.bis.org/publ/work405.pdf
eurotrash, you are absolutely right about the corporates. They receive USD and tomorrow have to pay the salaries of employees in EUR. They hаvе to sell USD against EUR no matter what is the exchange rate. Some of the treasurers try to "catch"a better rate but in long-term these efforts are worthless for most of the companies. What they can do is just to lower the spread. Corporates create flow around options expirires when they are netting their hedging postions, but usually they just buy or sell arount the fixing.

I suggest you read the paper, because it talks about who is successful trading FX as well among other things. I actually agree with what you say about corporates, I just haven't explained my thoughts as thoroughly as you did.... But my conclusion stands, level 2 quotes are wrong quotes to be followed as they do not represent what the banks are trading but rather they represent activity of their corporate clients.

Level 2 won't tell you where the orders are at. People screw with it all the time just to fool people...fake orders for instance, place them to manipulate the market and when price gets there they vanish. Most prominent to see on the emerging bitcoin market if you've ever had any dabbling in that.

I know where some the big banks are buying and selling, but here's the blunt of it - just knowing that isn't enough to make you profitable.

Find the clear S/R levels on 1 hr charts and higher (i.e. 4 hours).
Understand what support and resistance levels actually mean in terms of who is buying and selling, and whether large institutions are buying to open or to close a position at these levels. Perhaps they're doing both?
Watch what price does around these levels.
You may find that price behaves in predictable and occasionally violent ways around these areas.
Find a way of recognising a violent price move at these areas that shows institutional interest.
Build a plan around that.
Welcome to your trading edge.