Like knowing the hand of everyone in a poker game

Suppose you were in a poker game ad you knew the hand of every player at the table. This would give you an incredible advantage over the other players and make it much easier for you to win. You would know who’s bluffing, who you could beat and whose hand was stronger than yours.

Now imagine you are trading and you know exactly what positions the other traders have. Not only that, but the size of their positions and where their buy and sell orders were placed. Do you think that would give you an advantage? You bet it would. It would give you a huge advantage.

This is what I call Market Composition. Market Composition gives you an understanding and an awareness of the positions that are held by other market participants. Knowing where other traders are long, short and where they are placing their buy and sell orders is incredibly valuable information.

When I was a floor trader on the commodity exchanges one of the things we used to do as independent traders was to get to know the bigger brokers in the pit and find out what orders they had on their books. These guys with their big order books had the ability to move the market when prices got to levels that triggered their buying and selling. They were really not supposed to disclose this information, however, like any other kind of secret "intel" it was a case of developing relationships and getting to know the right people.

With the knowledge of where the large buy and sell orders were placed and where big stops were located, it became a pretty easy exercise for a group of us traders to push the price up or down to that level so that the orders were “elected” and the brokers would start buying and selling. Of course, us floor guys already had our positions on so when the buying and selling started we’d just ride the wave and exit safely with our profits. This became like a "cash machine" for making money to a few savvy guys on the floor.

By the same token, if we knew where the positions and orders were placed we could use that information to protect our own positions. We were literally using other people’s money for risk management, exposing their capital, not ours. So you can see how this was not only great for making profits, but it was an amazing risk management tool. When other people were using stop loss orders and choosing to take losses, we were literally using the money of other traders to manage our risk, protect against loss and ultimately, drive our positions to profit.

Market Composition is one of the fundamental things I teach you in my course. I show you how to determine who holds what positions, what size, and where the buy and sell orders are placed. With this knowledge you are using the capital of others to achieve your ends, which is profitability and effective risk management.

Find out more about my Forex course!