E-Book Review: Locked-in Range Analysis
According to the author, a
The problem is that the idea of LRA relies on three wrong assumptions:
- It is the futures market that moves the currency rates, not the spot. In reality,
exchange-tradedfutures amount to just a minuscule share of the total $6.6 trillion average daily volume in Forex. As can be seen in the BIS Triennial Report 2019, exchange-tradedderivatives (also include options) have the average daily volume of $127 billion. Also, currency futures traded on CME do not deviate significantly from the spot rates (adjusted for interest rate difference) because of the arbitrage.
- Market makers in CME FX futures act as a single
purpose-drivenentity. In fact, for its currency instruments, the CME authorizes market makers to operate only in FX Blocks, which are privately negotiated large-volumedeals performed by institutional traders. FX Blocks market makers do not make markets for "normal" hedgers/speculators futures trading.
- Market makers drive significant price changes. In reality, market makers do not rely on price manipulation to stay in business. Most of them utilize stochastic control theory (for example,
Hamilton-Jacobi-Bellmanframework) to minimize inventory risks and maximize profits. The topic is covered extensively in modern financial literature.
The author builds the entire LRA technique on these incorrect assumptions. Nevertheless, he describes a trading system, which is not unreasonable, — similar to rectangle breakouts and fading false breakouts. It is a viable strategy but it has little to do with the whole market maker vs. traders action.
Unfortunately, the author tries to market his method on "us vs. them" mentality,
That is why we do not recommend wasting time to read this
If you have any questions, comments, or opinion regarding Locked-in Range Analysis by Tom Leksey, please feel free to post them on our Forex forum.
If you want to get news of the most recent updates to our guides or anything else related to Forex trading, you can subscribe to our monthly newsletter.