Quote:
Originally Posted by jlmac27
Hello jocelyn,
I was wondering if you could get into this comment a little bit. My question is: When price retraces and tries to hit these stops, who is it doing it? Is it just the trading crowd in action, or is it big, players sweeeping up?
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Most of the major/minor levels on the currency charts harbour stop activity Josh.
Above & below the big swing levels, previous big weekly/monthly high-lows & key Round Numbers, hide the majority of the larger players protective & compound entry stops.
As intraday activity begins to threaten these major swing levels, price will become whippy as the market starts to work through & absorb the two-way traffic which house the various stops. It’s part of the reason why you witness sharp, erratic price moves as these levels come into focus.
Not only is there protective stop-loss activity lurking in there, but also fresh (new) entry orders residing from the differing timeframe trading community.
It’s all part of the bigger supply & demand battle. Whoever carries the biggest clout wins the day!
Usually, as price breaks thru a key level it will butt up against counter stop activity lurking beyond that level. This will cause turbulance until the bulls or the bears overcome the obstacles & re-assert their dominance.
As an example, take a look at USDJPY around the key 114.0 level. It was strongly rejected in 2nd Quarter 04 & slowly made inroads back up to the level during summer 05.
It got repelled during that summer & finally broke thru early into 4th Quarter of 05. There was obviously a large build up of buy stop activity beyond there, as it hadn’t been actively traded for 2 years.
The strength of the buying (stop activity) accelerated thru the level & journeyed 7 handles (up to 121.0) before popping back quite aggressively to re-test the level late into 4th Quarter 05. A good percentage of that early penetration thru 114.0 was down to (buy) stop build up & momentum.
But if you were to drill down into an intraday timeframe, around the time it broke thru 114.0 you’d also have witnessed lower timeframe stop activity unfolding. Both Tess & myself traded the level back then & I recall quite fierce intraday movement as it worked itself out.
The fast money are only intent on capturing small profit targets, therefore their window of opportunity is fleeting. But they’ll still be very aware of the price levels which harbour strong stops.
It’s these levels where they make their money. Which is why the professionals know their marketplace inside out. They understand the mechanics of a price level & the limitations of their game. They also know where the likely mine fields lie & who is also likely to become ensnared in it’s traps!!!
The answer really is that
ALL the different timeframe players contribute to the price moves which affect breakouts, retraces & rejections of key levels.
Take a look at this level (114.0) since late 2005. It’s a magnet for pivotal 2 way trade, especially since last summer. An awful lot of stop action resides around this key fulcrum.
If you use that example of how differing players influence a level by their aims & expectations, then you’ll begin to realize why & how these zones heat up constantly during the trading week.
Large & small players have very, very different aims & expectations up & down the price chart. But they all work the same levels as they come into focus & play them for their own aims.
Just sit back when one of these levels begins to hot up & try think about who wants what from it & why?
If we’re in a strong downtrend, who might want to play at a new low & why? Where would the shorts want to get onboard with their compound entries.
Where would the longs prefer to engage to test the resolve & stamina of the shorts?
What would need to occur in a strong trend for a counter move to assert itself?
And if such a move begins to materialize, where would the likely “stops” begin building to take advantage of this activity?!
Hello everyone,
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