Forex stop loss hunting
Many traders feel that the market is hunting for stop losses. This post will look at order placement and order flow, otherwise known loss market microstructure. We will start with stop losses. Stops are likely to accumulate in certain locations on a chart. Forex includes, but is not limited to the following areas: Big market players with huge orders are not able to stop like the smaller retail traders. When they initiate a position a substantial order often needs to be loss and price can easily go against them; this comes as they create a large imbalance in the supply and forex. Markets move as a consequence of the liquidity between the bid and forex prices. What about our previously referenced accumulation of stop loss orders? Running the stops here would likely help them fill a large position with enough traders taking the opposite side in order to prevent major slippage; therefore provide the large traders hunting a better average fill. If there are maybe 75 million dollars worth of orders at a given level the hunting traders may be keen to drive the stop price up to set off the stop orders and subsequently get a fill for their orders. If substantial offers appear at a given price, but relatively small volume is transacted, what is this saying to you? So lets look at the scenario above again. In the process of moving the market to the upside the astute large traders are often able to generate profits while initially going long as they squeeze the weak shorts out of their trades; these large speculators then get hunting of the position they procured as price reaches a desired level and sell another say 50 million as per the original intention to find the required liquidity and go short with a good fill. These large traders will not execute this strategy without ever losing a trade of course. These traders need to be in tune with underlying market sentiment in order to ascertain whether to fade a break of levels or not. The following example chart shows how price has taken out a low on the EURUSD currency pair. What happens when a low is taken out? In the next chart, which follows from the above; we can see that price continued to the upside after trapping the shorts. This is often referred to as a bear trap. The price action analysis gave a heads up as to a potential long trade. There will be many times that the market will continue to the downside despite giving a price stop signal like the one shown. Nonetheless, this is the kind of scenario that price action traders often look for as the PA signal is in a logical place with potential order flow. If the bears have to liquidate their positions the bulls can benefit. Most experienced forex stop aim to trade in the same direction as the hedge funds and large institutional traders. This is why the COT report is so popular after all. Do you pay attention to the order flow when trading? There are news services that provide information regarding loss clusters of orders and options boundaries. If the average holding period for your trades is very low it may be even more important to gain an understanding of where the bids and offers may be residing. Do forex brokers hunt for stops? Contrarian trading forex, Forex stop run, Stop loss definition. I was pleasantly surprised though. Excellent forex trading article! Please write more forex order flow articles like this. Loss about herd mentality to gain an edge trading forex. Look at how traders are influenced and subsequently adopt behaviours. This is the main edge you need to trade. Herd mentality and therefore herd mentality behaviour is prevalent in the financial markets. This is why contrarian hunting is the loss approach. Leonardoin the above comments, alludes to a common misperception held by traders — that brokers are hunting their stops. No bucket-shop brokerage has that kind of money to manipulate hunting market, only large banks and large funds do. Home Forex Trading Articles Trading Psychology Forex Trading Tutorials Commodities And Indices Gold Technical Analysis Charts Contact Risk Warning. Recent highs and lows. Popular moving averages including 10, 20,50, period. Market open levels less relevant for forex but still a consideration. Technical confluence zones comprising the above. Barrier options Many more areas. September 27, at 2: October 2, at 4: May 3, at 6: Leave a reply Cancel reply Comment Name Email Website.
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