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Institutional vs Retail Trader indicator?

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spockdude
12
spockdude  

I recently came in contact with someone that claims to have an indicator that shows "major" vs "minor" trader activity. They say that the "majors" are likely banks and institutions and "minors" are retail investors. The indicator graphs two pairs of lines... one pair for majors and one pair for minors. Here is a screenshot:

Unfortunately, the indicator is closed source so I don't know how it works. But, I'd like to figure it out. I know that when I traded stocks years ago I could look at market depth and it showed what institutions were on the bid/ask. But this indicator works with all instruments, in all time frames, including Forex. I'm new to Forex, but my trading platform (MetraTrader 4) does not show what institutions are on the bid/ask using the "Depth of Market" windows.

So, I'm a bit skeptical about whether this indicator is really doing what they say it's doing. Any ideas on where they are getting this data?

Stuart Browne
6681
Stuart Browne  
spockdude:


....


So, I'm a bit skeptical about whether this indicator is really doing what they say it's doing. 


And so you should be ;-)

Spot FX and the various index/commodity CFDs that are traded in MT4 have no centralised market and hence, no depth of market as such. There is also no volume reported so it is also impossible to know if one tick equals someone trading 0.01 lots (eg a retail trader) or 100 lots (eg, institutional trader).

The closest things you will get are the weekly COT report (Commitment of Traders, released every Tuesday) or the various "Sentiment" indicators released by several of the large brokerages.

Of course the COTs report is based on commodities futures, not spot, but it does translate. The sentiment indicators on the other hand are from the spot market, but will only show you retail trader positions. You therefore have to infer where the institutional money is by comparing what the retail traders are doing and where the prices are going. FYI, retail traders are frequently on the wrong side ;-)

Hope that helps!

Yohana Parmi
3472
Yohana Parmi  
Stuart Browne:

And so you should be ;-)

Spot FX and the various index/commodity CFDs that are traded in MT4 have no centralised market and hence, no depth of market as such. There is also no volume reported so it is also impossible to know if one tick equals someone trading 0.01 lots (eg a retail trader) or 100 lots (eg, institutional trader).

The closest things you will get are the weekly COT report (Commitment of Traders, released every Tuesday) or the various "Sentiment" indicators released by several of the large brokerages.

Of course the COTs report is based on commodities futures, not spot, but it does translate. The sentiment indicators on the other hand are from the spot market, but will only show you retail trader positions. You therefore have to infer where the institutional money is by comparing what the retail traders are doing and where the prices are going. FYI, retail traders are frequently on the wrong side ;-)

Hope that helps!


COT Reports.

Yes, you're right.

Our big question is why they do not display real time, or summary for at least a day behind.

We still have to wait for days or a week ¯\_(ツ)_/¯

They deliberately make lagging indicator, and the delay will increase our risk.

Hope it helps. (^̮^)

Alain Verleyen
Moderator
33594
Alain Verleyen  
Stuart Browne:

And so you should be ;-)

Spot FX and the various index/commodity CFDs that are traded in MT4 have no centralised market and hence, no depth of market as such. There is also no volume reported so it is also impossible to know if one tick equals someone trading 0.01 lots (eg a retail trader) or 100 lots (eg, institutional trader).

The closest things you will get are the weekly COT report (Commitment of Traders, released every Tuesday) or the various "Sentiment" indicators released by several of the large brokerages.

Of course the COTs report is based on commodities futures, not spot, but it does translate. The sentiment indicators on the other hand are from the spot market, but will only show you retail trader positions. You therefore have to infer where the institutional money is by comparing what the retail traders are doing and where the prices are going. FYI, retail traders are frequently on the wrong side ;-)

Hope that helps!

I would be more cautious. Of course we know all there are a lot of scams around Forex trading, but we don't know anything about this indicator or the author. Technically, using external data (so not only the ones provided by MT4), it's possible to build such indicator and to display the results in MT4. However from the screenshot posted, what is displayed is not understandable for me.
spockdude
12
spockdude  

Thank you for the responses.  And sorry for the delayed response, I didn't realize I had received any responses as I didn't get any emails notifying me that my post had responses.

The indicator works even on the 1 minute time frame, so I don't think that it's based on the weekly COT report.  The indicator only works with a re-branded version of Sierra Chart.  I'm fairly certain that the re-branded version doesn't extend the capabilities of Sierra Chart and that the sole purpose of bundling the indicator with a re-branded version of Sierra Chart is so that it's easy for the vendor to sell the indicator to it's customers full configured and ready to go. 

So, based on the responses here, the only data available in the Forex world that could reveal actual institutional activity in Forex is the COT report, which could not be what this indicator is using.

Also, being that there is no global depth of market or volume feeds, unless the indicator is pooling data from multiple brokers, it seems that truly separating institutional activity from retail activity isn't really possible.

Based on this, it seems that the indicator is somehow "guessing" at such activity perhaps based on price action... perhaps bigger bars equals bigger players.  Obviously this would only be true some of the time, but it's the only explanation I've been able to come up with so far on how it works.

If anyone else has any ideas on how the indicators could possibly work, I'd love to hear.  It's feeling a little bit like "voodoo" at the moment.

Side note... The reason I've been looking into this as I've met a few people that have had incredible success with these indicators over the past 8 years.  Not surprisingly, most of these individuals work for the company that sells the indicator. So, I'm also trying to determine if the success they're having has anything to do with the indicator they're selling.  It might really be the other disciplines they practice and that they'd have the same success with other indicators.

[Note: Hopefully this doesn't come across as a duplicate post... when I came back to this thread in a few hours my post was blank. Luckily I still had my post saved in notepad, so I'm reposting it here.]

whroeder1
16286
whroeder1  
spockdude:If anyone else has any ideas on how the indicators could possibly work, I'd love to hear.  It's feeling a little bit like "voodoo" at the moment.
This is what I have in my notes.
  1. Torrent:  "Elder Alexander - Entries And Exits.zip" pg272
       Effective Volume
       EV = (Close[1] - Close[2]                                 + TickSize)
          / (MathMax(High[1], High[2]) - MathMin(Low[1], Low[2]) + TickSize)
          * Volume[1]
       From 1 minute chart

       Find Median(|EV|, 1440)                               Recalculate per day.
       Large EV = Sum EV if |EV| > median     Red
       Total EV = Sum                         White
       Small EV = Total - Large               Blue
       plot small & large
       Breakout in the direction of the large

       Divergence between price and LEV - exit.
       or Effective Ratio   = EMA(250)( LEV(i) / Volume(i) )             M1 charts
                                                                      250 = one day.
  2. //futures.io/ninjatrader/23227-custom-daily-indicator-using-1-minute-info-pascal-willain-effective-volume.html
       determine the median, or alternatively use a moving average to divide effective volume into small and large effective volume
       def h = Max(high, close[1]);
       def l = Min(low, close[1]);
       userinput priceIncrement = 0.01;
       def ev2 = volume * (close - close[1] + priceIncrement) / (h - l + priceIncrement);

       plot EffectiveVolume = ev2;

       # set 100 period MA of ABS of ev2
       def ev_mag_avg = Average(data = AbsValue(ev2), length = 100);

       def small_ev = If(AbsValue(ev2) < ev_mag_avg, ev2, 0);
       def large_ev = If(AbsValue(ev2) >= ev_mag_avg, ev2, 0);

       plot SmallEffectiveVolume = small_ev;
       plot LargeEffectiveVolume = large_ev;
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