oh okay. thanks. i guess you just need to be aware of this possibility. even though no real change in fundamental, still can get whipsawed out as all it takes is a couple of opportunistic bidders and some stops to get taken out to rise 70-80 pips
there was a change in fundamentals. The market is very sensitive to any news and rumors. Interbanks do like to hunt stop losses when the market is thin but that was no stop loss hunting. There was absolutely no guarantee that after that 70pip upwards movement eur would go down again, hoping it would and risking large portion of your account is careless. In fact why be locked into -70pips open position and hope it comes down instead of biting on break even stop loss then shorting on top of that rise?
if you’re stop loss is hit that means price reached a point which invalidates your “prediciton”. Thus you’re pulling out of your position.
thanks nerys, yes i will be careful in future. but i still believe correct values for eur/usd 1.00 and gbp/usd around 1.15 long term, because i dont see much validity in the premiums they hold over USD
they are headed down
[B]Nerys[/B]. This is completely wrong… sorry it just IS. Fundi’s drive trends not tech’s (incedently hi impact news is not fundi’s when trading intraday) how may times have you seen NFP spike 60 pips one way and then the other? Today there was no news driven Euro or US price action. It was all tech driven. With time you can learn to read what is playing out… take for instance the big drop (could explain the move up but its more complicated) PA hit a significant S/R level if you look back, to say nothing of the average daily range on EU. Today was pure low/ high statistical trading. I could give you some fancy explanation but it boils down to that in the end.
Money. I love you. I say this because I feel a bit bad about always picking on you! but really man…much respect for having the guts, and the temperment, to wear the target for my arrow, because I believe it will make me, others, and YOU a better trader in the end. And I think this is what it’s all about.
Now…with that being said! make NO MISTAKE about it guys. There are some VERY POWERFUL, SMART MONEY traders that are indeed AFTER YOUR STOPS.
not nearly as many times as the beginner may think…but much much more than never.
You see…stops tend to gather in specific areas on a chart. Right above or below recent highs and lows.
Large traders with large orders to fill can’t just get in and out of the market anywhere they want. They are too big…and the
size of a large order hitting the market at one time will push price against them…they will experince some pretty MASSIVE slippage. Try to short 50 million in gbp/usd at one time, and by the time your order is done filling, price will have sold off 10-50 pips (depending on market conditions).
This is a problem for them. This means every trade they take opens for a WORSE price…and when the close it…it closes for a WORSE price as well. 15 pips of slippage on the front end and 15 pips of slippage on the back end is a MASSIVE disadvantage!
Even if your targeting 200 pip moves…that still cuts your edge down by 15%. So…now you are way behind the curve on every trade you take.
Hmmm…if only there was a place where they would be able to fill their orders without this slippage. Well…guess they would need someone to take the other side of this 50 million gbp/usd order they want… if only they knew where they could find a LARGE BLOCK OF BUY ORDERS AT A TIGHT PRICE RANGE…they could fill up without slippage…
hmmm…and where could that large block of buy orders be…I wonder?
Oh right. how about above the previous high? you know…the one where everyone went short at or below.
So, if they can make a good educated guess that above such-and-such price level, and determine it will have…say 50 million in stop orders there… they will ABSOLUTELY be willing to push price up…just to trigger these stops so they can fill most of their order.
Say…they determine that where price currently is…it will only have to buy 10 million in gbp/usd to push price to the level where they believe they will find this 50 million of buy stop losses (a stop to buy and cover for all those who are short)
At that point, they will absolutely buy 10 million of gbp/usd, which will push price into that block of 50 million buy orders.
Then,…they get to cover the 10 million they just spent pushing price up (the cover by selling the 10 million), and they get to sell another 40 million more WITHOUT PRICE DROPPING A SINGLE PIP!
See…thats because 50 million of buy orders are sitting up there. (people often waiting to cover their shorts…and potential long players who have limit orders there and are waiting to “buy the breakout long”)
So…
-
They make money going long, and poppiing many the stops of those who are short. They make money buying up the market.
-
They then unload their entire 10 million position they just acquired…at the top of the move. They then also get to sell off another 40 million at that same price point…because there are still 40 milllion of buy orders, both stops and long limit orders…right there. So, they fill a 40 million short position at the top of the market, without any slippage.
-
They still have 10 million they need to sell…and now, supply exceeds demand. So…as they sell that last 10 million…the start to crush all the people who just went long because they thought they were smart and would “buy the breakout”. This forces these new long positions to cover. And how does a long cover? u got it. by selling.
-
This selling of the longs as they cover their now losing position pushes price down even further…giving the larger institution a healthy profit from the start.
Sounds tricky? it sure as hell is. Sounds exotic and sophisticated? you betcha. Sounds likely? you better darn believe it!
See. they HAVE to do this…it’s not a matter of choice. Otherwise…they will start every position they have with a massive loss of slippage as their order pushes the market away from the price they want to get in at…
that is, unless they can find a tight area with a lot of stops/limit orders 
So they do.
By the way… knowing where your orders are is a big business in and of itself! Many large investment banks buy the “orderflow” from brokers…such as charles schwab, e-trade…ameritrade…and many others (at least in the stock market)
And I’m sure this is one of the reasons why many of the larger forex brokers have been aquired or have been bid on by potential investment banks.
So they can make money setting their customers up to trade with. AND, so they can make even more money using their customers stop placement to fill their own orders for a nearly guaranteed profit…at least initially.
This is a gross oversimplification…and i’m ignoring many other components of what makes a market move, and the other players…etc…
I may be overstating the value of retail forex orderflow…and whether larger financial institutions really do find a great value in it (I know for fact they do in the stock markets)
but make NO MISTAKE ABOUT IT. your stops are targeted. all the time.
The market will always move in a way that makes the most people lose the most money most of the time.
i’m not talking false broker spikey “stop hunts”. i’m talking larger institutional buys and sells to push price into areas likely
to have many stop losses/limit orders there.
It hurts those short now. as soon as it fills, it hurts the new longs. Both get squeezed out and cover.
I know profanity isn’t really allowed here…but basically, understanding market microstructure, the players and their motives, supply and demand…and it’s twin sister: orderflow. These 4 concepts are the secret.
Otherwise… it’s really just about you getting ****ed
I sometimes don’t even know why I tell so much here about this type of stuff. I hope i’m not cutting into my own paycheck. This post, and a lot of thinking and observation should be all anyone needs to make a LOT of money, a LOT of the time.
To be a profitable trader, just find out how the market must move to hurt the most amount of people. Then, you will know
exactly what will be coming up soon!!! Cold…but true.
Jay
P.S. to get an idea of how the game is really played, get the book market wizards 2. read the 1st chapter on currency trading. there is a very good story there that give you an idea of just how they are actively looking to take your stops out.
P.P.S. for all of you who got your stops hit this week by a few pips, only to see price rally all the way past your original target… Thank you! You made this post possible as your stop paid for my entry, and thus paid for my time here
Pearls before swine eremarket… newbs ain’t buying into it when there’s a 5 & 15m ‘Holy Grail’ TF chart out there… just follow PA using any and all indi’s and you’ll be fine right?
Fine by me. someone needs to keep me fed. 
Jay
Eh? Of course fundamentals drive trends who said otherwise? I am not talking about news spikes, i am referring to in fact the ECB printing money for IMF in essence acting as the lender of last resort even for the last 2 weeks it’s been saying it won’t be the lender of last resort. Ever since that rumor started hitting the markets the eur has been on the upside. Rumors even though just rumors have an impact on the market just like the real thing because as a rational person you have to take them into account and adjust positions accordingly.
Furthermore this week was all about italian and spanish yields. When would start and continue to sterilize italian and spanish bonds the eur would go higher without hitting any significant technical levels. NPF is different, as there we have a forecast that is ether hit or missed in which case spike is the readjustment from forecast to actual figure, after the spike the the real impact of NFP report begins.
How can you say today was pure high low statistical trading when ECB finally managed to push italian and spanish bonds yield down. (which created the whole down movement with the scary 7% figure in the first place)
Edit: i’d like to add, since Wednesday eur is going for higher highs, yields on both spanish and italian are calmed by ECB sterilization, spike from 1.3515 to 1.3600 was purely on ECB IMF lending rumor reported from Dow Jones.
nerys is right. there was a bit of news ‘less bad’ which caused a market that was over-short to cover, causing a big spike.
although ecb buying is short term less bad, in the long run more is required to stabilise the situation.
one has to be careful of going short into a market that has already gone down 400 pips, and a market that is full of participants that are short with many many stops at swing highs, bound to get hit on the slightest ‘less bad’ news.
LOL!!! Tried the better part of two years and all I got was trolled… now don’t bother! Outstanding methodology and thread by the way. :57:
So what then pushed it up? If your saying news pushed it down? No worries, I’m sure your right. :35:
Bad day eh, happens. Power through it pal
hi R. carter. nothing wrong with your opinion. all arguments have weight, but in actual fact no one knows what actually caused the market to go up or down, other than that more buyers than sellers(when goingu p)
I see it like this guys… fundamentals are fine. But they have to be put into the proper light, so to speak.
The market tends to focus on just a very few core issues at any given time. RIght now…it’s the euro problem. This past week, it was bond yields of potentially problematic euro countries.
But the actual facts are not important for an intraday, or dare I say even a swing trader. It’s how the market FEELS about these facts. IE: sentiment. bond yields just under 7% for a developed G20 country is TERRIBLE fundamentally, but…better than OVER 7%.
So, the negative sentiment relaxes. For many traders, for many reasons, this gives them reasons not to sell more…or even reasons to buy. Good place to cover shorts, as one trader anticipates the euro will not continue to fall far without at least a retracement…so this person covers. Another who planned on shorting doesn’t…because the sentiment is becoming slightly more positive…AND the market is now starting to move up (because the guy who covered short pushed price up a bit as he covered). Companies that do big business in the euro feel a bit more relaxed about putting more money in the euro to follow through with potential business plans since the feel a little more confident, and price is now starting to move up after all… etc… etc…
So, once the larger speculative players see sentiment changing…and trend changing… they often seek to get long (as in this case).
But again, we run into a problem with liquidity. So… they may very well wait for a fair amount of aggressive buyers to jump in and place their stops…only to smile, because the stops of the early pioneers in this emerging move to the long side will provide the liquidity they need to fill THEIR long positions.
So, now they can push price DOWN by selling a large amount. As soon as they hit the stops of the early long players… you know, the “sell stops”. they buy back what they sold to push the market down…and also fill a large portion of their intended long order.
With all the stops gone, this temporarily empties the market of resting sell orders. They just consumed every resting sell order (the stops of the guys who were long) between the high of the move up…and however far down price was pushed. With every sell order between the previous high, and where they found the liquidity (ie: stops) that they needed to fill up… there are really no more sell orders left in the market now are there? Well…at least not from the recent high…to the new low.
Sure, some will execute at market…but these are primarily retail traders, making emotional decisions. The fact is (and studies have been done on this) that the majority of more informed traders use limit orders more than market orders.
So, we really only have the relatively emotional, retail guy jumping in to sell that drop. The retail guy is NOT the guy who moves the market. The commercials and the large specs are.
Now, with resting sell orders wiped out, and this large institution buying large blocks…which way is price likely to go?
Any willing seller has just been taken out. If they are still in their trade…FINE! they will have no ability to hold the market down, as they ALREADY SOLD SHORT when their stop for their long was hit… and therefore the influence they have to affect current price is gone…unless they decide to sell short again, as a reverse to their original position (which was long…and just got stopped out with that stop that sold off)
so lets consider who’s left to go short. we know most larger speculators place carefully planned, predetermined limit orders. They are not likely to be jumping in to sell short on sharp spike down over the last few minutes or hours. Furthermore…they tend to be good at reading market sentiment. They are good trend traders in general…and will ride out the trend caused by this sentiment. If sentiment is improving…they are NOT likely to be going shorter…and may even want to cover.
This in fact makes them more likely to cover as price drops… because a short trader wants to cover at the BOTTOM of a move. (thats where they make the most money). So… if anything, they will have a long bais due to improved sentiment and changes in price action… and since they have likely been short during this overall move down…theyh will…if ANYTHING, want to cover those shorts…or get long.
Either way…it produces pressure to the UPSIDE.
We know commercials buy or sell against the trend… as they are not in it for profiting off directional moves. essentially, they are hedging time. So, they COULD be a seller as price would move up…except they plan their orders out days, weeks, months, or even years in advance. Any order they WOULD have had to sell would have been placed above current price… and since our brave pioneering “first to go long” traders already pushed price up to that recent high… we can assume any commercial interest that had a sell order would have already been completely absorbed by the market…at least to that recent high before the drop.
We know this because we know commercials trade counter trend…always. and they plan trades long in advance. a few hour drop is not going to be enough for really very many (if any) to put new orders in between the top and the bottom of this push down. And besides…they genreally put orders in above/below recent highs/lows. Not in the middle of move down lasting a few hours.
So, the only traders left to sell are the silly little retail guys (I know…because for years I was that silly little retail guy!)
And… the largest players (commercials) won’t likely be selling much, if any, between the low where the stops are triggered…and the recent high.
And the 2nd largest group (large speculators) if ANYTHING will be buying from that point. because they don’t want to be so short when the sentiment turns up (it’s risky for them if they think others will buy…so they have to buy to make sure they don’t get squeezed and lose their profits!). Or…they may even want to go net long. In either case. they won’t likely sell more after such a drop in price, in the face of changing sentiment, and after price action has started to move up. They have every reason in the world to buy.
This just leaves small speculators to sell. They are less than 10% of the forex markets, and are the smallest segment of the three groups in any market (futures, commodities…stocks…etc).
And of course… not all 10% will try to sell. some longs that got stopped out will re-enter long. others will just go long. whatever.
Point is… over 90% of the trading community will NOT be going short now, and really almost none from the two most important groups… commercials and large speculators.
So now mr. retail - you went long…you got stopped out… and the market rallies up.
The commercials didn’t care much to start with…they won’t start selling until after price pushes past the recent high that Mr. Retail took it to.
The large speculators wont sell…heck, they are trend followers…who watch fundies and sentiment to determine when that trend is changing. Better Euro News? even if THEY dont’ want to buy…they know that SOMEONE out there with big money will want to buy… and they will lose money on their open short. so they buy. if for no other reason than to reduce exposure, and take profits.
So Mr. Retail watches price move up…up and away. as large specs reduce their short exposure… and take profits…and even go long on this improving news.
It’s too bad Mr. Retail got stopped out, and was totally confused by all this though. He was right on direction, after all. he just didn’t consider that his stop was going to give a large speculator a great fill on HIS long…the long of “smart money” that will push the market up, up and away.
There you all have it. This is how fundamentals, sentiment, and technicals all play together.
So, when sentiment changes… pioneers first. large traders use their stops to do the same thing as the pioneers (generally), but use the stops of the pioneers to get in the market. and commercials are a mute point unless we get higher or lower in price from recent highs/lows.
It can get more sophisticated than this…and this is an oversimplification… (believe it or not), but I hope some of you open minded types can start to get a more complete picture of how this all fits together.
Jay
I forgot the name of it, but I once was referred to a Pit Trading documentary, and there was a Pit trader in it that described the markets as such:
“the market is a Whre… it’s out to F** as many people as it can”
Awesome quote, never forget it. I love profanity BTW. Don’t know why we can’t swear here, kids shouldn’t be trading LOL
It’s called ‘Floored - The Movie’ (and I like to THINK I was the one that made it ‘popular’ here i.e. there’s a thread from ages ago somewhere where I posted a link to it). I’m not sure why ‘The Movie’ part was added to the title because it’s not a movie it’s a documentary. And in my personal opinion: ANYBODY that’s thinking of trading for a living should watch it first BEFORE going through the BabyPips School and BEFORE even opening a demo account!!! Why??? Because it shows you what you’re ‘in for’ ‘for real’. And the documentary is about REAL traders that have ‘the edge’ over any retail trader and even THEY go through the SAME emotions, highs, and lows, that we do. And don’t just look at the ‘glamorous’ side. Take heed of what this business CAN do to you if you allow it. Here’s the link (to watch it in episodes LEGALLY):
And yes: that’s my ‘quote of the century’!!! (I THINK I even have it on FaceBook as one of my ‘Favourite Quotes’. I used to have it on my profile but figured it was ‘bad for business’)!!! LOL!!!
Enjoy.
Regards,
Dale.
P.S. There’s another one (documentary) called ‘The Pit’ and you ‘lucky buggers’ in the USA are going to be able to see it on TV before I do (I’ve been in contact with them and it’s only going to be available on DVD next year). This documentary is about the Floor Traders at the NYSE. I cannot wait to get my ‘paws’ on it (and of course anybody that feels like recording it to DVD and shipping it to South Africa, so that I can watch it before I’m able to buy it, well, then, please feel free):
P.P.S. There also another one called 'October ‘87 - Crash and Comeback’. Unfortunately it’s only available on DVD. What’s ‘frightening’ about it is that the similarities between what happened then, sub-prime, the credit-crunch, and what’s happening RIGHT NOW TODAY in the markets, is ‘uncanny’. It’s well worth the watch and the money I assure you.
WOW, thanks for the Saturday Morning Education Jay, Im going to print those 2 posts, if thats cool…
Its a crazy a$$ biz, and Im finally starting to learn the real ins and outs of it.
Now, all this is prety much the reason, I started my first leg of this biz by scalping. I know its dangerous, and " Noobish", but, I see it as stick and move punches, because your in the action, finger on the trigger, and just jumpin on the run-a-away trains, then jumpin off a block away. No stop to hunt, and them seeing me hop on train in the darkness of the the bigger traders shadow. So, I take it for a small ride, hop off, then wait for the next one to come, and do the same thing.
I control Everything from the entry to the exit, and leave nothing to hit over the head with. I hop on, dont even take off my shoes, or open a can of tuna, I just wait for the next clear spot to dive off into the weeds…
[B]NERYS[/B] Actually the best single day in a month trading purely on tech’s… go read ‘beginers disaster’s’ thread for Thursday night Asian, Friday London and New York. Makes you think that big money uses the news (good or bad) to its own advantage to push PA to given levels. Surely not? LOL
Halba, when I read your question I think you are under the impression that you got cheated or tricked? Please clarify.
Really? The Asian session was at low tech levels and within a fairly predictable range and you could see smart money buying up the dips. The trigger is usually a break below or above the range (in this case below). That quickly pushed PA to critical mass and a breakout of range to the long side quickly insued. At the breakout I went long. If you can learn to read whats actually going on behind the chart you will improve your trading expodentially.