Forex Traders Daily
Trapped Traders Daily Analysis
Stop Loss Hunting for Professional Traders
January 11, 2018
Hello traders, Mark Chapman here, and today we’re going to take a look at the NZDCHF. This is a four-hour chart. One of the chaps made a comment on the YouTube channel if I could take a look at this for them, so that’s what I’m doing for Lloyd today. Thanks for your comment, Lloyd, and if anyone else wants to do something similar, ask me to take a look at a particular chart, I’m more than happy to do that.
I’m not going into like loads of different subjects because I’d rather just stay on topic and teach you guys how to understand the markets in the way that we analyze and trade them. So, if you’ve got a chart you want me to take a look at, stick it in the comment and I’ll do my best to do the analysis for you and get that video made asap.
So, here we have a level that’s been a resistance. Then it becomes support. And then we’ve got resistance. Resistance loads of times in there. Obviously I won’t draw them all out. Interesting this area. I’ll come back to this in a moment and then we’ve had it again in here. Now then.
What this type of turn is referred to as – it’s not just usually described as let’s just say a level of resistance like that. It’s not just a level of resistance that pivots and turns away from price. What you actually have is price going up to a level and then it’ll base and then it’ll drop, and that is referred to as a supply area, where supply outstrips demand and your friendly supply-demand traders would consider that a rally-based drop.
Now then. Why that’s important to this particular analysis is because usually what happens is, is the turn will occur usually at the beginning of that supply area. So, you see that. So, it didn’t really go far into the level. Certainly didn’t go to the top, whereas in an area where there’s resistance where price pivots, then obviously people will trade it as close to that level as possible, whereas in a supply-demand area it’ll tend to go in a little earlier and it’ll turn a little earlier.
Now then. Why that’s important is because, from here, if you were taking this supply area and going short in here, where are you going to place your stop? Well, you’re probably not going to place it above this pivot. And if you did, that would be stupid because you’re going to get potentially bumped out of the trade for no reason. You’re choking off the potential when the trade might still be active.
So, you’re most likely going to go above the actual supply stroke, support-resistance zone. It’s doing both things in this example. You go above that level, so you’re going to place your stops there. Now then. If you look at the move itself, so here’s your stops and stops equal money. If you look at the move itself, it didn’t really succeed, did it? If you consider this move went all the way across this range, this is an area off to the left. It didn’t do it. It did work to a degree, or rather it went a certain distance, but it certainly didn’t work. It didn’t make it across that range. Like that would be a reasonable target even if you were just targeting halfway across it. It certainly didn’t manage that.
So, you’ve got the sellers at the level placing their stops at the level. And the reason why I’m saying that these traders are still in this – actually, it went a bit further; forgive me – is that there’s a good chance those traders didn’t exit their position. And what you’ll have had in here is several retracement traders on pullbacks and again in this lower version of that swing. And then again, but these ones got caught. Traders got caught in here and here.
These traders would be also, to a degree anyway, likely to place their stops above this area, especially if you got in and around here. The lower down ones perhaps not. Perhaps they were just going at the swing points and they’ve been stopped out. Price comes back to the level and sells off again. Now again, this is perfect because there’s going to be more traders selling at that level and where are they going to place their stops? Probably just above that structure.
Again, why would you place it here if you were selling in here when you’ve got this bigger level off to the left? It would be dumb to do it. I mean people will do it, but the vast majority of people would place it further up. So, what we’re having: because these moves didn’t really work out, and granted, some will have got stopped out as it retraced, but some won’t. What that’s doing is the first touch back in, you’ve got stops.
Those sellers are probably still in it because it didn’t go across the range as would be a reasonable target, so they’ll hold on to the trade as price comes back and they’ll hope it turns again. You’ve got breakout traders trading the breakout of these swings. You’ve got retracement traders. Again, there’s a chance that they’re placing their stops above that structure, above this supply zone. And now you’ve got price come back into the level and again more stops.
So, this is a really good target if there was to be a manipulation because there’s definitely some liquid residing up there and that liquid will allow a big transaction to occur seamlessly without the cost of slippage. So, we’ll go forward.
So, it breaks up. Now those stops are now being triggered. As price breaks up through the level, people are being stopped out. As they’re being stopped out, that allows something big to start selling in the face of that buying, because if you sold in here and if you sold in here and obviously all the other little areas that I talked about, then you’re going to place your stop above there. If you’re a seller, you must buy to exit. So, that forced liquidation event, as price goes up through those stops, is triggering those buy orders, allowing something to sell in the face of it.
So, price pulls back as you would imagine and you get that break pullback. I’m just going to clean that up a little bit. So, you get the break pullback in here. That’s what you’d expect to see. You’d expect to see a bounce. It does go up, drawing in more retracement traders. Breaks that high, drawing in breakout traders. Bit of a retracement in that wick. Again, retracement traders, and then pulls back. Bounces off the level again. Retracement traders.
So, what this is doing in its entirety – what’s happening is people are being encouraged to go long, believing that the break pullback is in play. And what might happen – we don’t know, but what might happen is that might just be a rouse to get those traders in and allow something to continue selling in the face of that willing buying, and then boom, the manipulation occurs and you would anticipate price actually making it across that range under that condition.
So, what you want to look out for is obviously price to sell off and then some type of little pullback in the underside of this level, and then you can look to take the trade. Place your stop above the manipulation. The reason why you would do that is because not all swing points are created equal. This swing point is now a manipulation. Therefore, it’s not a safe swing point to place a stop, whereas this is a very safe swing point if you’re going to place a stop, because if this is right, if this plays out as we’ve described, then something large – just saying one entity. Just keeps it simple, but obviously it could be many. But something large has basically been selling.
They’re not going to come all the way back with the best will in the world and the greatest respect for our poxy orders. They’ve already worked a level. The manipulation has been done. The money that it costs to do that has been done. The transaction is complete and down you go. That doesn’t mean that sometimes you will be in a situation where price comes down. You manage to get that entry and then it actually goes higher.
And people will ask me why might that be the case. Well, first of all, it might go higher and then come back down because whatever was doing the selling up there hasn’t fulfilled all of the order. Now, in a condition like that, usually you’ll still make money in the trade. However, if it was just to sort of fly higher and you’re sat there thinking well, hang on a minute. Mark said that was a manipulation. Why have I been stopped out? Well, because sometimes the supply-demand equation will change and things that can do that is like a really bad geo-political event or a news event on the calendar that really missed expectations or was super positive beyond forecast.
And these things can and do screw around with the supply-demand equation. So, if you’re ever wondering if you take a manipulation and then you get stopped out, don’t just blame the idea. Realize for the potential for the supply-demand equation to adjust. And usually, even if a manipulation is attempted to occur, that can be foiled by a big change in supply-demand based off some type of news event. And you’ve got to remember the news stuff is largely algorithm-based and these things are making decisions in a blink of an eye.
We just can’t compete with them and they are here. They are real. It’s a real thing, so it’s just one of those things we’ve got to compete with. But yeah, I hope you found that helpful. If you’d like to learn more, click on the link below and I’ll see you on the insi
Forex Traders Daily