For all you new traders the term “stop hunt” may not be familiar, so let me explain it because it effects retail traders.
It look like it happened this week on Cable (GBP/USD) earlier in the week it played itself around the 1.30 level, it then stalled at 1.3175, this signalled some sort of correction.
Now for the crux, the market was overcrowded and it created volatility, and the term “stop hunt” refers to the speculative traders who are mainly retail traders, who are holding positions just under or over key levels are taken out, adding more volume to the direction the pair are heading in.
My week going great till Friday, then the events from the USA and Canada on unemployment figures really bounced the markets around, unfortunately a couple of my trades were on the wrong side and worked against me, I had closed out on a a few USD trades on Thursday, unfortunately this is where although I was aware of the fundamentals, sentiment seems to have played a part from traders.
Although Covid is still a factor in the markets, I’m not sure the market knows where to go, safe havens are’nt that safe and then Trump starts upping the anti on China, so sentiment is playing its part, hence the rise in the Gold price
My week ended 224 pips down
Best Trade USD/CAD
Worst Trade EUR/CAD
3 Trades in Play.
UK100 sell, not sure where this is going trend is down, but seems to be bucking it at the moment.
CAD/CHF sell, another with the trend going down, could be a slow burner.
NZD/JPY sell, Saw quite a sharp reversal, Kiwi seems to be weakening, again trend is going down.
Have a good week trading
What is key level? How is it defined and why there is an assumption that both retail and professional traders define them in the same way (so pro traders know what levels to hunt for)? Is it round numbers like .500 or .000 or simply areas of previous support and resistance?
That assumption Does exist and it is said that “Stop hunting” not only terminates some bets, but also the enforced transactions give momentum to and provides contracts for the following move in the opposite direction.
The “professional” traders can also SEE the actual pending orders (which includes the Stops) - on their charting software - much like “Level 2” on ES Mini provides !
For your information, pro traders don’t hunt retail traders stops! Why? Because retail traders stops are all over the place. Some retail traders try trading the 1 minute chart or even tick charts if their platform can then at the other end of the scale the retail swing trader could be using the daily, weekly or even monthly chart. Hence retail traders stops are spread all across the market. Professional bank traders have the luxury of knowing where the stops are for their general money flow order book and they will scalp the market to try and protect their stops. And a hint. Their stops are placed close to trend lines where 95% of wholesale orders are placed. My reference for this information is an ex professional bank trader.
I don’t say they actively hunt, as you can see certain conditions prevailed in the trade and triggered what can be seen as a “stop hunt” event, the major players have their own reasons for this action, but isn’t an everyday occurrence, the post is about educating new traders about what can happen in the marketplace.
Now you link to this article.
Thanks for this evidence.
But this doesn’t mean it is visible through their charting software. Bank traders use one of two charting and analysis software packages. Bloomberg Terminal or Routers Eikon. Their order book system would be different. Then at the end of the day they have two jobs. Their main job is just to facilitate order flows then a bank trader will be allocated a budget for trading. When they trade for profit they wouldn’t be interested in retail traders orders. They focus on key levels of support and resistance based on simple trend lines. Buy orders placed on top side of trend lines and sell on bottom side.
Then if we shift our focus to brokers. A brokers core business is to connect the retail trader to market and each money from the spread and commission. Successful brokers wouldn’t even have a need to trade themselves.
