Forex Traders Daily
Trapped Traders Daily Analysis
How to Avoid Stop Hunts When Trailing Profits
January 12, 2018
Hello guys, Mark here. Hope you’re well. Today’s date is Friday, January 12, 2018. And I had a question yesterday in the comments from Money Money. Thanks for your comment and your question. It’s a really good one actually, so yeah, I’m more than happy to try and answer the question for you.
And the question was: how do you trail stops in a trend? So, obviously you’re in profit in this scenario without being stop hundred during that process. And obviously every trade comes to some type of conclusion and we can’t really manage that other than to say that we do have an opportunity to make our moves when we choose. The market is going to do what the market is going to do. But in terms of how we sort of respond to that, we do have some choices as far as that’s concerned.
And I want you to focus on this area. So, we’ve got this level of support. It’s pretty nicely well defined. You’ve got your entry cheese. I’m just going to change the color of this. You’ve got your entry cheese in here. And then people are going to place their stops below this structure and lo and behold, they get creamed. So, those traders who were buying in here, believing it was going to bounce as it had done in here and off to the left, they go long. They place their stops. Those stops are sell orders. As price breaks down through the level, there’s a forced liquidation event, but also breakout traders get involved and start selling as well. So, something can now start buying in the face of that selling in this efficient liquidity pocket.
Price pulls back. We would anticipate some selling again. Break pullback. There’s some more willing selling and perhaps some more willing selling in here too. It’s getting a little bit high, so there maybe would be slightly concerned about that, but there is a little bit of a level there, but I wouldn’t be too keen on taking that trade if it were me. But anyway, nonetheless, then price goes up. There’s the manipulation pretty much complete.
So, now you’re looking to go long, so let’s imagine that you get in now. Price pulls back a little bit. You go long. Now then. You’re off to the races now. So, here’s the thing. Where are you going to place your stop? Well, our stop is not where everyone else’s stops are. Our stop is on the other side of the manipulation. So, not all swing points and stop placements are created equally. We want to place our stops where an institution would be essentially placing their stops or at least on the other side of the manipulation where they were involved because the idea is that they’re not going to come all the way back with the greatest respect in the world for our poxy orders.
Now, if they were to, if price does take another swipe, which I’ve talked about on many occasions, which can happen, what you want to do is you just want to watch price as it comes back in to the stop area because sometimes it’ll just take another little swipe and then off to the races it goes, or it’ll take several and then off to the races it goes. So, that initial stop placement where the manipulation is hopefully completed should be okay, but of course sometimes price will come back against that position if whatever is doing all the buying hasn’t completed all the buying.
So, it will induce more sellers in and come back again. But the point is, at this point, we have an edge. This is where edge is now present and we have to act. So, even if it was to take another swipe, we’re not to know that. So, we have to ultimately take our position at that point. So, just on the initial placement, we should be good, but sometimes it will take another look. Sometimes it will fall shy of it before it goes. Sometimes it will even peak slightly below it before it goes.
Now, what you do in terms of your own stop placement is you only want to be sort of five or ten pips on the other side of the manipulation in the first instance, but just give yourself a little bit of leeway. Just maybe give yourself a little bit extra in terms of maybe in your risk percentage. Just keep a point of a percent back or something. So, if you’re risking one percent of half a percent on a trade, just keep a little bit back so that you can afford to just watch price just beyond the level just in case it’s just going to sucker more traders in before ultimately the manipulation completes.
So, that’s the first thing to talk about. That initial stop placement. But we’re going to talk in this instance as if it was successful the first time. So, there’s our stop placement. So, now price starts to go. Now then. I’m going to have to lose that initial stop placement as price develops. So, price is off to the races and we’d anticipate some type of retracement. So, this is what we’re witnessing.
So, remember our original stop placement should be in no doubt now. We should be pretty safe where we are here. Now, what’s happened now is we’ve had this move, which this swing is now a fairly obvious place for people who maybe weren’t involved in that move or maybe got stopped out of that move and may be looking to get involved now. They’re going to place their stops below that structure because they’re probably not going to be able to take this much risk onboard, and people don’t like doing that.
So, what happens is people try and hide behind these localized swing points. So, the most obvious place where they’re going to place their stops are these more localized areas, but absolutely more likely is you’re going to have more stops below the most recent swing point, especially when It’s fairly nicely defined like that and you make a new high in price. It’s all very clear and obvious. So, our stop remember is down in here.
Now, if we’re going for three or four times risk or we’re trying to trail and try and get as much out of the trade as we possibly can, which is the conversation we’re having here, you don’t want to suddenly panic and place your stop below these obvious swing structure because this is where everyone else is going to do it. Now, in a trend, it’s never perfect. What happens in a trend is there happens to be a moment where price will sort of level off or will breach below local structures before it heads higher in the direction of that previous trend because the market can’t continue in straight lines. And during the process of a trend, more traders need to be seduced and induced in or caught who were trying to get involved in the trend. They need to be caught and that liquidity needs to be hoovered up and then we’re off to higher or lower prices. Higher prices obviously in this case.
So, if we’re down in here, we know we’re in good shape here. So, don’t be quick to panic out of this position. The next thing to obviously note about this scenario is you don’t want to stick it up the chuffer of that most recent swing because if this is true, and this is a reality of any type of trending structure, if you send any time looking at it, it’s never, ever perfect. There’s always a bastardization of one of these or several of these swings as it continues. And obviously the longer it goes, the more you’ll see it.
So, this is a dumb place to place your stop, so in this scenario we just stay put. Now, I’m going to lose all of this drawing here, so we’ll just continue forward. All right. So, price pulls back and, again, if we’re faced with this information, nothing has changed. It would still be really dumb. In fact, it would be more dumb now to go below here because there’s a couple more swings developed and price hasn’t really broken out of this little area, so we’re still good. We still should be holding true to our original scenario here and allow everybody else to potentially get caught in what could be a manipulation before continuation.
Now, again, what’s changed in this scenario? Absolutely zero. We haven’t broken out. In fact, we’ve come back into it. Those stops are now a real target. There’s loads of liquidity sat under there if it was to be pinched. So, again, we’re still just going back again, just to reiterate the point. We’re still golden being down in this area. Okay, so we break by the looks of it and we get a little swing pullback and a little pullback again.
So, now it’s kind of changing because this original position is in no danger whatsoever. Now, you could stay there if you wanted to. This position looks as if it didn’t get nailed. There is liquidity under there, but the market moved. Obviously no reason or no requirement to manipulate anything here. This was enough in this scenario. It doesn’t look like it’s coming back to this position.
So, now your focus is more upon where stops would’ve been as price now develops. So, as it breaks up, break pullback. That’s a decent place, so there’s going to be some stops under here. And these are very shallow pullbacks anyway, so this now looks like a place where you could move your stop and be okay. Now, of course one of the things about trailing your stop in this way is that your profits are going to sometimes run away from where your stop is by a considerable amount.
Well, you’ve just got to accept that because if you’re panicking about losing what you’ve got, all you’re going to do is fall for the same old scenario. You’re going to put your stop too close to price and you’re going to get manipulated and not be able to hold for those longer, more profitable trades. But this certainly now looks like a decent place to go. And granted it’s not a huge distance however many pips that is, but it is a trailing of your stop and locking in some profit.
So, we continue on. What I’d look for now is I’d look for some proper swing structures. There’s some. So, you don’t want to go below there. Again, you’re going to get some stops below these structures. Okay, so here we go. So, these guys and girls who were late to the party. They’re being stopped out now. This is a particularly obvious target after this, so they’ve been done. Now, if this went to higher prices, this would be a good place to go. The logic would follow that the manipulation was here and not here and we’re off to the races again.
Now it’s coming back. Okay, so this is a prime example of where some stops would now be. So, now you’ve got this area that’s well defined. It didn’t come lower. Let’s see if it breaks out to new highs. If it does, then you could probably go below there. It stays up there. Coming back again. It’s going to stop some people out. These people are getting stopped out now. So, this is still a big target, so I would be a little bit concerned about going here or under this area.
This pullback. All these pullbacks are creaming these people. You want price to go higher now. If it breaks to a new high, then you can go above that. See, that’s probably okay there. Now you can probably go below here. So, what you’re essentially looking for is an area where a stop hunt would be obvious, so this would’ve been an obvious place for a manipulation to occur and it didn’t. And because it didn’t, it did it a little higher up in there, but these structures – that didn’t happen.
And on you go. You get the idea. So, as I say, you’re going to have to give it a little bit more room. Now, this take a lot in terms of your ability to cope with it psychologically. You’ve got to be comfortable with it, but ultimately if you’re not going to let your profits run, then you’re not going to let your profits run and there’s nothing that can be said about this process helping that because even though you can try and do something like this, psychologically you might not be able to cope with it.
Now, that’s not to say that that’s not something you can work on and improve upon. We’re all trying to do better in every area hopefully in our trading, but basically it’s just about logically remaining true to your original stop for a little while to allow the trade to get underway. Then you’re going to look for some really defined structures where those stops will build up below those structures. If you then get a breakout and a clean move above, this is where you want to move to and you’re constantly looking for those clean structures to be nailed, to be manipulated. And if you don’t get it, then you go to that next area and then you keep moving forward as it keeps breaking and going higher.
And yeah, you just do that until ultimately you get to a situation where you’re going to get stopped out. And you’re going to have to give a little on the top end to gain overall because you’re going to see pullbacks. This is an example where that would feel pretty horrible. A 900-pip pullback, but overall you’ll be in a situation where you potentially would make 3,700-odd pips. Something like that because you’d probably get done. That would perhaps be the swing that would get you. Well, no, it breaks out to new highs, but ultimately it’s coming back anyway to get you.
And again, can you swallow a pullback of a thousand pips? Well, if you’re making 3,700, you’ve got to give a little. So, I hope that helps. It’s not an exact science. Nothing really is in trading, but it is a way for you to try and extract a little bit more out of a trade rather than your standard trailing stop that is just not going to cut it because you can’t have some arbitrary figure. You can’t say oh, well, I’ll trail it by 20 stops or 20 pips or 50 pips or 100 pips because it’s not considering and taking into account the structures. The structures matter. And if you’re not thinking about that, then it’s never going to work. So, trailing stop doesn’t work anyway. This is just sort of a version of it that can try and help you extract more from the trade in a little bit more of a logical fashion.
Again, nothing is perfect, but it is a way to try and do that. So, stick to the original stop. Hold your nerve. Obviously you’ve got to have that psychology, and if you’re struggling there, you need to do some work in there to try and improve upon that. Then as price breaks out to new highs, new lows, then look for these really obvious structures. Don’t be quick to go below them because that’s where the manipulation is going to happen. And then when it breaks out to those new highs, new lows, then go to those structures.
All this time you’re still below these structures down in here and you’re not moving until price is over here, going higher, so this is where you would go below those obvious structures that weren’t manipulated as price then follows through.
So, I hope you found that helpful, guys. Have a lovely weekend. If you’d like to join me in my inner circle, the link is below. If you like the video, like it. And if you’ve got any trading buddies, please share it. We’ve got a thousand subscribers. We’ve crossed a threshold of a thousand subscribers overnight, so thank you to all you who have helped that become possible. And if we keep sharing this information, more and more people will be helped by it and the channel will only grow.
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