Forex Traders Daily
Trapped Traders Daily Analysis
Use ECN Brokers to Avoid Manipulations?
January 8, 2018
Hello traders, Mark Chapman here. Good morning. It’s Monday, January 8, 2018. And I’m just having a look at this GBPUSD on a daily chart. It’s not there yet. There’s a bit of entry cheese. We’ll talk about the entry cheese in just a second, but I also wanted to address a couple of comments that I received on YouTube yesterday, which was essentially someone saying markets are not manipulated, and the way that you get around that is by not using a market maker. By using an ECN broker, which is an electronic communications network.
It’s supposed to be a process by which the market maker broker doesn’t see the transaction. They just put you into their network and match up electronically other people to take the other side of the trade, so they’re not on the other side of the trade essentially. And there’s also an STP broker as well, which is essentially straight through processing. Pretty much the same process. A couple of things to note.
So, the comment was essentially there’s no such thing as a market manipulation if you don’t use a market maker, but it’s a non-argument because a couple of things. First of all, who do you think writes the software? So, who’s making the software for the STP and the ECN brokers? Who’s doing that? Humans are doing that is the answer. So, it wasn’t some alien from outer space who came down and made a 100 percent secure bit of software that nobody understood how it worked or nobody could have insights to how it worked. It’s human made.
And if it’s human made, it can be unpicked by humans. It can be understood by humans and someone somewhere has that information. It would be beyond naïve to think that they don’t. So, that’s the first thing. So, you can’t truly know either. So, even if you were to use one of these brokers, I’m not suggesting you don’t. I’m just saying that it’s a non-argument and I’ll continue making my point in just a second.
But even if you were making your trades through an ECN as an example, who’s to say it is? Have you ever been in the offices? Have you spoken to the guys? Have you looked at the processes? So, unless you’ve done all of that and understood that, there have been cases where companies were believed to be ECNs and they turned out not to be. FXCM I believe being one of them. Don’t quote me on that, but I think that’s one of the companies that went pop. And when it was all sort of unpacked, it wasn’t a direct access brokerage.
And if I’ve got that wrong, apologies, but you still get the point. There are companies out there that will say it, and unless you actually go and see is physical, you’re never going to know anyway. That’s the first thing. So, humans make this software, which means humans can totally infiltrate that software. You’d be totally naïve to believe anything else. The second thing is you don’t know whether or not it’s a true ECN or STP broker, number two. Number three really. And the other part to it is, is there’s known market makers still in business. Well, there are many.
So, even if you’re using what you believe to be an ECN, is it not still the same process? Imagine we’re able to bring up. Let’s just say I was able to bring up right now this is the GBPUSD. I’ve sort of butchered the chart, but imagine I could bring up ten different brokerage companies right now and we would have a look and see where Cable was currently. And pretty much they would look identical to this level.
Price would look virtually identical. There will be some slight differences because as we all know, there’s no centralized exchange, so sometimes price does print differently. That’s absolutely true. Sometimes price reaches beyond price point one hundred. Maybe in one broker it’s 102. Maybe in one broker it’s 101. And maybe in the other seven or eight it’s 100. So, first of all, it all looks the same. It’s all the same. Just because you’re trading an ECN, you’re not protected because that’s not the only ECN and that’s not the only market maker and that’s not the only broker in the world.
If it was just one chart, one broker, one ECN or one STP, then there’s an argument. You still wouldn’t know because you haven’t been physically to see and it’s human made, but you would have an argument that therefore you’re protected. But it’s one chart. It’s one broker. So, you’re not protected. There’s hundreds of brokers so that you’re just not protected. So, the logic completely fails.
The other part to it is, is if you’re trading away on your ECN, that makes you feel comfortable in some way. Great, but it’s not protecting you. It’s folly to believe that you are because a market maker, or several, are still transacting and still out of money and still want their money back to square their book off. Just because it’s not the broker you’re trading with doesn’t mean that they’re not manipulating price elsewhere.
See what I mean. The logical utterly falls down. The other part to it is there’s absolutely no consideration in the argument for a big bank order. How does that change if you’ve got an ECN? It makes no difference at all. If a bank needs to transact, they need to take a huge position, the of course it follows that they will take that position and you will be manipulated irrespective of what broker you’re using if you trade in the standard, normal described ways.
So, there are many reasons why that argument absolutely holds zero water. And market makers. Bank institutions. I use those terms interchangeably. Really all I’m saying is people are manipulating the markets and you can see when they’re doing it. And there is no ECN in the world that’s going to protect you from that. As I said, if it was the only broker in the world, then you may have some degree of safety in that regard even though you haven’t seen it physically and it’s human made. It’s the technology. And if you don’t think there’s back doors into that, you’re stupid.
But the reality is that is not the case. And you would still have big banks needing to transact. There is absolutely no argument. I’m not saying use a market maker. I’m just saying you’re going to be manipulated by one even if you’re not, so it doesn’t make any difference because they’re trading in vast quantities of money much more I would imagine than the person who was making that argument and anyone who makes that argument combined.
So, yeah, I just wanted to make that point because it’s a really, really good point. I probably should have addressed it earlier, but anyway, there we go. So, here we go. Looking at the GBPUSD. It’s still setting up. We’ve had this outside candle. It takes out the high of that prior candle’s high and then closes near its lows below the low of the prior candle.
Now, we’ve had a bit of a pullback and this is, again, an outside candle and an engulfing candle. So, if you were to zoom in and have a little look at this on a lower timeframe, let’s have a look. You’re going to have some type of decent pullback. Looks like a 61 percent fib. Somewhere around there. Not a million miles away. 78.6. So, there’s your pullback. So, if we go back out, what you’ll find is you not only got the entry cheese from the traders who were pulling the trigger just at the level off the big engulfing outside candle. You’re then going to have them in all of this.
So, you’ve got the excitable traders trying to get in where price is. They’re not waiting for much of a pullback. They get caught, but their stops are above here as well. People waiting for the 50 percent. Again, their stops are above there. People trading at the 61. Again, their stop is up there. 61, and then finally the 78. So, if you were taking a trade off any of these retracements, I would wager that you wouldn’t just go above these structures. Not when you’ve got such a level in close proximity as we’ve discussed several times.
You’re going to put your stop above that level, which means there’s an accumulation of orders above there. So, if we just go out again to the level, the old fib. So, if I was taking this retracement, the absolute minimum you would do you would imagine is you would go above that swing. But why would you go there when there’s that swing a couple of pips above and that trade could actually still be legitimate and that level could hold and protect you. If price was to go against you slightly, it could end up doing that.
So, you’d just be crazy to place your stop in such close proximity to the level when you’ve got such a big, strong pivot, turning point just above you. You would literally stick your stops above that area. Some won’t, but I’m just generalizing. Most people would do. And you’re not just getting the level traders going short. You’re getting, as we’ve just discussed, several groups of retracement traders going short. And what that does is that builds up the stop accumulation above that level.
And if you’re a seller, then those are buy orders up there. And if you are something big, regardless of whether or not you’re on a market maker platform or an ECN or whatever you’re on, that level is good news for something big if it needs to do some selling. Price would come up through the level, trigger those stops and mess around at the level potentially, and then down.
Imagine the manipulation has happened, just to finish off the argument relating to brokers. Imagine we had a manipulation. We had that. If I could get ten brokerage platforms and put them side by side, they do look pretty much the same. So, there’s no protection whatsoever even from a broker to broker perspective. Just from the chart’s perspective, there’s no protection. Do you not think that even if it is an ECN and even if it was secure, they don’t know where your stops are.
And the argument falls down, as I said, because that’s just assuming there’s one broker trading and everyone is on that one platform. They’re not. There’s loads of companies. There’s loads of platforms. So, I hope that makes sense, guys. So, just let this develop. This is how it develops. If it doesn’t play out, it doesn’t play out. If it holds as a level of resistance, then it holds. And too bad. It didn’t setup, but this is how a manipulation unfolds if it’s going to. It’s tempting traders in to go short. It then goes up through the level, nails the stops, and that selling process in the face of that forced liquidation event, which is the buying, allows something big to do some selling.
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