Forex Traders Daily
Trapped Traders Daily Analysis
How to Trade Stop Hunts
November 8, 2017
Hello traders, Mark Chapman here, the creator of the trademarked Trapped Traders Concept.
Welcome to today’s Trapped Traders Trade of the Day Analysis. Today’s date is Wednesday, November 8, 2017.
I just want to bring your attention to this level. Four-hour level on the EURJPY. Previous resistance becoming future support. And the reason I’m highlighting this is because I just want to show you what it looks like to have a potential stop hunt in a trend. Sometimes it doesn’t become as developed as this, so for instance, a trend stop hunt can be as sort of minor as that, but it can also be you’ve got a move up and then you get a development of a level like that before it actually continues higher. You get the stop hunt and then it follows through.
So, what we have here is the potential for that. Now, I’m just going to zoom in and walk you through the process. So, what people do is they historically look back at structures where there’s a potential for them to take a trade based off of those prior levels. So, if you’re a support-resistance trader, you would look at this as a potential area to basically buy. And you’re doing it based off those historical structures. How many times it’s touched previously, and that gives you an indication that there may be a setup occurring into the future. That’s the whole idea.
But you aren’t just going to take the trade. What you’re going to do is you’re going to have a look to see when it actually returns or should it return to see how it reacts off the level. How it responds, and that’s key. Not many people just place orders at levels. What most people do is they want to see some type of a reaction that’s proven their analysis to be true. And then, depending on how that looks, and this is what I refer to as entry cheese, depending how convincing that is depends upon whether or not you’re going to get really quite a lot of people piling in.
And what you can see here is you can see some weakness in this candle. There’s buying here. And then you get an engulfing candle that closes right near its highs. You get a swing point. A fractal swing point, and then a candle breaking above that prior candle’s high, the engulfing candle. This is a turning point, so people pile in. And what happens is – so, this is how it looks now and that focus on that area in the here and now stops people from considering what’s coming into the future.
And what’s coming into the future at the hard-right edge, which is what I’ve talked about ad nauseum, is price is going to fill in this area. It just requires some time, but people don’t consider it. People are very much focused on those historical structures, which gives them the indication of whether or not they’ve got a setup or not and then it’s all about how price reacts as it returns into the level. As I said, not many people are just pulling the trigger at a level with an order because too many levels get breached, bastardized, and people get sick of being stopped out continuously. Death by a thousand cuts.
So, what people want to see is some type of confirming price action. So, there’s your swing. There’s the weakness in the candle. There’s your engulfing candle closing near its highs. And then a breach of that prior candle’s high. This is entry cheese that tempts any trader in to take a trade pretty much if you’re a level trader. It also makes your moves in terms of where your stop loss placement will be extremely obvious.
So, what we’re looking for is basically a failure, the stops to be triggered, and then price to follow through. Those stops to be nailed, because this is that efficient zone where big heavy hitters can essentially transact efficiently. Big institutions want to sell high, buy low. Buy low, sell high. The same as everybody else, but the problem is if everyone is buying off a level of support and it’s just very, very clear and everyone’s doing it, then there isn’t going to be enough people to take the other side of that trade to go long, because if it’s a big institution, a bank or several, then how on earth is that going to occur? The price is going to fly away from where they wanted to do business, let’s say at price point 100. Before they get the rest of their business done, it’s just going to shoot away from that location.
So, what happens is, is the stop hunt and you get that well defined level, loads of people are trading it, but also the moves are obvious, so the stops go below the level. It breaches the level and then it creams them and unfortunately leaves the station without you onboard, and that’s basically how stop hunts present themselves and how people get caught in them.
But importantly, with the information that I can share with you, is you can be on the other side of that equation and start being the hunter instead of always being the hunted. So, if you’d like to come and join me in my inner circle, guys, click on the link below. I’d love to see you there. Take care.
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