Forex Traders Daily
Trapped Traders Daily Analysis
How to Spot Stop Hunts for Explosive Trend Trades
September 11, 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 Monday, September 11, 2017, and it’s another very quiet Monday. We’ve got literally nothing on the news wires today. So, yeah, very typical Monday, so there’s nothing to talk about in terms of setups. The CADJPY that we talked about backend of last week gapped up. If you didn’t sort of catch it late on Friday, it gapped up on the open and it’s kind of got its skates on since then.
If it pulls back, it’s still probably a decent little entry. But anyway, because there’s no setup, I’ll just talk about this chart because it’s very interesting.
If you’re ever in a situation where you have sort of an understanding of the broader trend and if you think that you’re definitely in some type of trend, be it up or down, what essentially you’re trying to do is you’re stalking price as it goes counter to that broader trend. So, if you’re in an uptrend, if you believe you’re in a higher timeframe uptrend, then what you should be doing is you should be stalking price as price comes back. Retraces. Pulls back towards you for an entry. You want to look for some type of market manipulation. Some type of stop hunt so that you can jump onboard the next impulsive move higher.
So, in the case, I’ve just drawn it out just to make it simple. So, imagine you’ve got some moving averages on your chart. Your standard stuff. Your 20. Your 50. Your 100. Your 200. And you believe this is a daily chart. This isn’t a daily chart, but I’m just overlaying this on the lower timeframe. And you believe basically that you’re in this strong uptrend, but price is pulling back and that’s obviously how price moves.
It’s in here that you want to start stalking price. So, let’s just overlay that on to this lower timeframe, and this is that retracement of that higher timeframe in here. So, in here, I’m looking for the development of something similar to what I’ve just described. Now, it’s never precisely the same. It always presents slightly differently, but that’s what I’ve got in my mind. I’m thinking how am I going to get onboard this trend and what type of stop hunt stroke manipulation is going to occur. What type of traps are going to catch people?
And if we focus our attention, first of all, in this area here, what you’ll notice about this drop is that it’s kind of pretty. If you were looking at this and not sort of paying attention to that broader daily trend, this would look like a really nice downtrend. This is what I want you to pay attention to. You see how price goes kind of parabolic to the downside, kind of vertical in nature. It’s at the bottom of a fairly steady move.
Now, what that tends to be more often than not – it’s not 100 percent of the time, but it tends to be. It’s indicative of price action. It tends to be what’s referred to sometimes as a blow-off top or bottom. And essentially what it is, is it’s a final push to drag traders in the wrong way. And then if it reverses like that and you sort of get price trading above any sort of recent highs, it basically is like a V bottom like that. If it starts trading up in here, what you’ve got is a group of traders who are now caught short in those trades.
They’re probably not going to get allowed off the hook. This type of V bottom trap tends to, or I refer to it as a screw trap as well, be very typical. If you’re in a trend, it tends to be a very strong trend continuation signal. So, what you’ll see on higher timeframes sometimes is you’ll see this pattern. And if you’re in a monster trend, just take a look at say the SMB 500 as an example, you’re in this colossal trend. And what you’ll notice is if you look at it over time, you’ll see these screw trades along the way. And really what it is, is it’s a refueling exercise for price to head higher.
It’s catching people who are trying to buy the tops and bottoms in a trend, which is obviously a bad move if you understand you’re in a trending environment. It’s not necessarily a bad move if you’re not in a trending environment. It’s the other way around. But if you’re in a trending environment, buying tops and bottoms is obviously a bad move. You’re going to get crushed, but people still do that because people lack that spatial awareness to understand that they’re in a trend in the first place on the higher timeframes because what happens is, is when people are trying to get very active and they’re focused in on the lower timeframes, what tends to happen is they lose objectivity of those higher timeframes.
So, they kind of lose a little bit of spatial awareness if you like and they just get drawn into this. So, this move down here would seem to them like a big trend when in fact it’s not. It’s just a retracement of the broader trend to the upside. And they’re drinking the Kool-Aid. They’re going to get spanked. So, screw traps in the opposite direction to a trend are usually a good sign, so that’s the first thing.
So, what happens next? We then have this area here and a massive impulsive move up when you measure it against anything that’s been happening in recent history. This was a strong move obviously, but this would’ve looked very, very enticing at the right edge. There’s obviously a chance there for retracement traders to go in as well. That would’ve looked very, very enticing and drawn a lot of buyers in.
Now then. If you went long in here somewhere for whatever reason, whether it was the breakout that got you in or some type of retracement that got you in, where would you place your stops in a situation like that? Well, there’s not really that many places you can put it. You’re probably going to put it here. Now, a lot of people wouldn’t go down there because of the distance. People are trying to be cute. People are trying to day trade. People are trying to trade within the confines of a daily range. It’s no use if you’re trading the EUR say and you’ve got a 50-pip daily range and you’re trying to go for 200 pips in that day and have a huge stop. I mean it just doesn’t make much sense.
So, what people tend to do is they might have like a 20-pip stop or a 25-pip stop, something like that, or less, and they’re trying to get 40, 50 pips on the day. Something like that; within the confines of those daily ranges. So, it’s a pretty structure as well. That’s the other thing. You want to look for very obvious structures, where price pivots clearly away from it. These little retracements are not so obvious. That’s an obvious pivot. That’s an obvious pivot. That’s an obvious pivot. Just look at it. It’s kind of straightforward when you get your eyes on it.
Now then. Why is that important? Well, if people place their stops. You’ve got these guys down here who are trapped. They’re short. You’ve got these guys in here who have been drawn in to go long. And as price then comes back against them, they get stopped out in here. Okay, this is a stop hunt.
Now then. What is a stop hunt? Well, if you’ve been listening to my videos for any length of time, you’ll know what that is. Essentially if you’re a buyer and you’ve gone long in here because that price is very, very indicative of a move higher, you’ve obviously got these micro structures suggesting the market is going higher. People place their stops below these obvious structures. If you’re a buyer, then your stop loss order equals a sell order. So, the sell order is sitting here.
Now, if you’re a big institution, a big bank, and you want to do some buying, what are you going to need a lot of? You’re going to need a lot of selling to occur. So, it’s not that these people went long because it was a bad decision. It wasn’t a bad decision. It was the right decision, but it was also a decision that an institution wanted to take. And if everyone is buying, then they can’t get off all of the trading they need to do. So, price gets manipulated back down, and as it stops those traders out, this is that sweet spot. This is that place, that area on a chart where a big institution can do some business efficiently.
This is a zone, a sweet spot where a bank can execute efficiently without majorly moving the market and without any slippage or anything like that. There’s plenty of people taking the other side of the trade because the market has been manipulated into that location. So, then they go long. So, this is the first signs that something big has done some buying, and remember we’ve still got these people down in here who are trapped short and there’s not a lot of hope for those people to get out of those positions in one piece.
If they’re still in them, obviously some people get stopped out. A lot of people hold positions. Why? Because humans make mistakes and don’t like to lose. So, moving forward what do we have? We have the same situation in here. We’ve got another stop hunt. So, a stop hunt occurs in here and then price moves up. And this, again, is where traders will look to go long. Look. Puts in a new high, except it’s not the biggest high. It’s locally a new high though above all of these swings. It’s a new day as well by the way, so people kind of have a short memory. They’ll forget about that. They’re focusing on here.
So, price makes a new high and a new day. Pulls back into maybe what could be described as some prior demand, where price has shot up from that area. Backed and filled, and then boom, popped up. People go long. If you went long in here as a retracement trader, where would you place your stop? Below these structures. Below these structures. And price comes back and it kind of squeezes you, and then holds, and then maybe get a bit more buying in there, but this is the stop hunt that would’ve nailed you.
And I appreciate that it’s a bit of a scruffy drawing, but you get the idea. So, let me just clear that up and highlight the two areas where the stop hunts occurred. There and there. So, what is that telling us? That’s telling us when you’re looking at a chart like that, that there is a very strong possibility that the direction of travel over the coming hours and days is going to be to the upside. Without knowing what the future holds, you can walk through this analysis. Granted you’re going to have to have a couple of days’ worth of data. That’s why you’ve got to be patient. That’s why day trading for me is not a thing I do per se. I’m obviously trading during the day when I take trades, but it’s more – for me, I take the trade and execute when I know that I have an edge, when there’s an edge present.
That took three days. There’s people trying to do business in here every day. Buying and selling breakouts, retracements, etc., off levels and they’re getting churned in this situation and they’re also getting caught on the wrong side of the market, where if you just look at that and that was all we knew, there’s no argument for manipulation the other way. There’s no argument in here for a manipulation to the downside. It’s all been stop hunts that are indicative of a move higher.
So, if you know that, if you can walk through that logic, then you can place a high probability trade. Now, where would you place your stop if you went long somewhere in here? You’d place it under the stop hunt. If you’ve got a couple of stop hunts like this, you would go below the lowest stop hunt. There is very little chance of price going all the way up, then down, and then coming all the way back up and stopping you out. The reason for that is with all the greatest respect in the world, your order size, and that’s me included, is not big enough. After all of that effort and that money has been put to use to get the institution in that position, where essentially you’re about to have a distribution, this is where all the accumulation of those order has taken place, they’re not coming back for our poxy orders. It’s not cost effective to do that.
So, that’s why you can be confident. It’s not that you’re not supposed to place stops in and around swings. You are, but you’ve got to pick the ones where you think the institutions are essentially trading. And if you do that, then you’ve got a lot less chance of being stopped out first and foremost, because of that reason. They’re not going to come back for your order. It’s highly unlikely.
So, going back to that earlier point, if this happens in the direction of that broader higher timeframe trend we talked about, then there’s a very good chance that you’re going to have a continuation of that trend coming here very, very shortly.
So, I hope you’ve found that interesting, guys. This is one way that I analyze the financial markets. And if you’d like to come and learn how I do this, then I’d love to have you in my brand new inner circle. The link is below this video. If you like this video, hit the like button. If you’ve got any trading buddies that you think will benefit from it, share the video and I’ll see you on the inside.
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