Rocket – Follow the Big Money

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Rocket – Follow the Big Money

Strategy

Rocket EA is a highly specialized automated trading system. At first glance, most traders might call Rocket a ‘dime-a-dozen’ grid trader, opening trades at random levels and hoping for a good pull back. For some gridders out there this can last weeks if not longer and leaves the trader with long periods of open drawdown. However, as you will read below, Rocket is quite different.

Rocket’s algorithm is based on how institutions capture profits from the GBPUSD market every single day. As you probably know, large institutions are limited by trade size – this forces them to trade in small blocks and slowly build a large position without upsetting price in the wrong direction. They will only add to their position at good price levels, so that each new entry improves their overall position when the markets reverse. These institutions will accumulate (build large long or short positions) during Asian hours, as these hours are ideal for an accumulation phase because liquidity is low. They continue to build these (countertrend) positions towards the opening of London, and when volume comes in and the market reverses, they close their positions at a nice profit.

Rocket was developed to follow the exact same strategy: accumulate positions during Asian hours and close around London Open when the market reverses. As you can see in our own performance data but also charts from our clients, this strategy has worked really well.

So while many “gridders” out there may just be that, Rocket is quite different as it is based on the strategy of the large banks: accumulate during Asia and profit during London.

Background

Large banks and hedge funds dominate the forex market with circa 70% of the total traded volume. Institutions can move price and make markets. To make money, institutions do not enter during a range breakout and don’t enter during a trend confirmation setup. It’s a well-known fact that Institutional Traders ‘Buy’ when Retail traders ‘Sell’. This may be one of the reasons 80% of all retail traders lose when trading as they’re following the wrong signals. As retail traders, we have to actively deal with this fact and not trade against the institutions but rather find a way to trade in line with them instead.

The picture below shows how Institutions pushed price during the Asian session into a zone where previous demand was. In this case, they did not wait to grab extra liquidity from (your) Retail stop losses which rests directly below the Demand zone but you may expect they will do that again next time. As soon as these professionals gather enough Buy volume on low price they allow price to develop higher, back into value.

So large institutions accumulate longs during the Asian session when price is dropping. They’re ready to cash out (“distribute”) for a nice gain when the market reverses during the London session.

Here’s a textbook example from live trading with Rocket which illustrates the strategy:

So, in summary, here’s how Rocket trades:
• Rocket trades in line with the Institutional behaviour during the Asian and pre-European sessions.
• Rocket has no opinion on trend direction nor on price levels where value should be.
• Rocket trades the swings and follows the direction of the institutions.

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