Traders often say ‘’follow the smart money’’ or follow the big money. But how are you supposed to do that? The closest we have to knowing what the ‘’Smart Money is doing in forex is the COT report. But that report comes out late on Friday and only includes the positioning as of Wednesday. So by the time we get to trade on this information on Monday, we’re already five days late. Plus, the COT report shows positioning in the futures currency markets, not spot FX. No doubt there’s a lot of overlap and the same players are probably trading both markets but a better indicator would be forex positioning. Bet Against the Dumb Money
The ‘’Smart Money’’ can be in the markets for various reasons other than taking a directional bet. These include hedging by large multinationals, arbitrage or just old-fashioned market making by banks and high frequency firms. In my experience a better course of action is to bet against the ‘’Dumb Money’’ instead.
Who is the ‘’Dumb Money’’ in the forex market? In large part, retail traders are the proverbial ‘’Dumb Money’’. Before we go on, let’s see why betting against retail forex traders is a good strategy. Cut Profits, Let Your Losers Run
A large US r…