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-   -   Stop Hunting using Sentiment and Market Structure (https://www.forexfactory.com/showthread.php?t=943641)

SentiFX Aug 26, 2019 11:55am | Post# 1

If you've traded the markets for any amount of time, you will likely feel like someone is out there hunting your stops. You may feel like your trades are constantly being targeted.

But are your stops really being hunted? By who? Why does this seem to keep happening only for the market to go in the direction you originally intended?

You hear that 90-95% of retail traders fail, but have you asked why? Is there something about the way that retail traders think that is causing consistent losses over time? I believe so.

Is it possible to think differently and trade the opposite to become profitable instead? If you are willing to challenge your beliefs and explore alternatives, yes.

Have you ever wondered why support or resistance didn't act like you would expect? What if I told you the traditional concept of support and resistance is a lie and that behavioral psychology is a much more useful belief in understanding order flow.

In this thread we will explore over time how stops are hunted for both entry and exit so that you can get in at wholesale and get out at retail.

We will explore how sentiment can be a strong driver of price absent a news catalyst... and how Market Structure really works and why.

If you're already consistently profitable, keep doing what you're doing.

For everyone else, the journey of thinking differently is about to begin.

For more information about the SentiFX Sentiment Analysis Suite used in this thread, head over to https://sentifx.com

SentiFX Aug 27, 2019 6:34pm | Post# 2

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Current Retail Positioning, Retail is currently piling in long EURUSD
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SentiFX Aug 27, 2019 6:35pm | Post# 3

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Current EURUSD price chart.

Where are the stops?
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Js3mwtRc Aug 28, 2019 4:52am | Post# 4

Current EURUSD price chart. Where are the stops? {image}
Sellers stops should be around 1.1125-30 and for buyers all along below here, 1.1070 and down until 1.1050, the market is bearish. Nice graphic how do you choose the pairs?

SentiFX Aug 28, 2019 10:57am | Post# 5

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{quote} Sellers stops should be around 1.1125-30 and for buyers all along below here, 1.1070 and down until 1.1050, the market is bearish. Nice graphic how do you choose the pairs?
Correct, here is the current situation with likely stops for both longs and shorts marked.

The thing to consider is, if retail is becoming heavily LONG and you are a MM (Market Maker), and you wanted to take their stops, where would you push price to?
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SentiFX Aug 28, 2019 11:01am | Post# 6

Keep in mind, trading is always about probabilities, never certainty. We are in the risk and probability business.

What is LIKELY to happen??

Absent NEWS that could drive price in either direction, what is more likely to play out here? Retail is Long EURUSD.

For every buyer you need a seller, and ever seller you need a buyer.

If retail is BUYING EURUSD, they have to SELL at their stop loss. If you are SELLING EURUSD, you can BUY their stops to close out.

Shabs19 Aug 28, 2019 11:58am | Post# 7

I always think in terms of what would a broker need to do to price, to get retail to BUY / SELL their current position ?

Anusragger Aug 28, 2019 12:00pm | Post# 8

If retail is only 5% of the entire FX market, how could they ever move the market? Why would brokers try to hit their stops? It's 275 billion dollar plus market daily, so even if they would want to do that. Do you really think they could?

Shabs19 Aug 28, 2019 12:15pm | Post# 9

Smaller banks & institutions can also be retail. The large Banks (LP's) can & do move the markets.

On the above chart, price broke above last weeks high by 10 pips to entice further Longs into the market, you know the rest.

TradeMinim Aug 28, 2019 12:22pm | Post# 10

One of the reasons is because most traders don't know what market phases they are trading in,
and entering the trades with tight stops. It's a non stop tug of war between institutions, banks and retailers.

But here comes the point, What can you do about it? How can you profit from this edge?
How can I find a method to validate this hypothesis? Solve these puzzles and you will head
towards profitability. Don't chase the unicorn. Trade safe

Js3mwtRc Aug 28, 2019 12:28pm | Post# 11

It is not nice to see all of your stops eaten by bigger traders with more money, but that's just retail forex trading and it can't change, at least I can't think nothing that can help except the right risk management.

Another one problem that is bothering me for days is why and how a market will turn, let's take AUD & NZD/JPY for example the trend is always tricky for the retail trader, it moves up and then it takes down another low. Why be a buyer here, but this is why I am trading and I am a risk trader, also I don't use sentiment like a contrarian indicator, but as a tool to help me with my confidence and I like buying scary bottoms, or sell tops too, who doesn't, but I use caution.

Anusragger Aug 28, 2019 12:54pm | Post# 12

Does the FX market determine the price of a currency? Or is the price of a pair determined by the value of an individual currency?

Anusragger Aug 28, 2019 1:02pm | Post# 13

FX is not centralized. How come brokers quote the same prices (more or less). Doesnt this decentralization make it harder or even impossible to "move the market"?

Shabs19 Aug 28, 2019 1:10pm | Post# 14

Does the FX market determine the price of a currency? Or is the price of a pair determined by the value of an individual currency?
The Fx market will decide the price of a currency, value is what the market perceives it to be.
Your definition of Value is based on the economics of the two countries, but not always in sync with the fx market.

It is not nice to see all of your stops eaten by bigger traders with more money,
Stops are just liquidity pools where orders can get filled. No LP nearby then price will move to the next available to get a fill.
Markets are there to do business, win or lose.

Anusragger Aug 28, 2019 1:16pm | Post# 15

{quote} The Fx market will decide the price of a currency, value is what the market perceives it to be. Your definition of Value is based on the economics of the two countries, but not always in sync with the fx market.
So price of individual currency indexes is also derived from FX prices?

Shabs19 Aug 28, 2019 1:22pm | Post# 16

{quote} So price of individual currency indexes is also derived from FX prices?
https://www.thebalance.com/u-s-dolla...l-data-3306249

Shabs19 Aug 28, 2019 1:40pm | Post# 17

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FX is not centralized. How come brokers quote the same prices (more or less). Doesnt this decentralization make it harder or even impossible to "move the market"?
The market is well connected, sometimes there can be slight differences called arbitrage, but retail would not be able to profit due to spread widening by brokers.
This diagram might help:

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SentiFX Aug 28, 2019 4:45pm | Post# 18

Stops are just liquidity pools where orders can get filled. No LP nearby then price will move to the next available to get a fill. Markets are there to do business, win or lose.
That is correct, yes retail cannot move the currency market - but retail is a great liquidity provider.

Shabs19 Aug 28, 2019 5:53pm | Post# 19

{quote} That is correct, yes retail cannot move the currency market - but retail is a great liquidity provider.
Please carry on, don't want take over your thread.

SentiFX Aug 29, 2019 10:38am | Post# 20

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Good Morning Traders,

Stops are in sight, if you took the trade it's good practice to take some off the table at the base of structure or move stops to break even.

Either way you should have bagged a few pips.
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KeenPips Aug 29, 2019 11:11am | Post# 21

I have a problem with an apparent contradiction in your first post. You indicated that support and resistance levels don't work as expected yet you indicated the potency of market structure. Technically, a key aspect of market structure trading is the potency of support and resistance zones.

KP

SentiFX Aug 29, 2019 11:16am | Post# 22

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As I was posting the previous post, there was a spike up in EURUSD. This pair has SLOWLY been moving to target and to continue to take out stops below, retail had to be cleared out first to create a double selling pressure.

This is why I usually take some off at structure and also trail by two swings, the first swing is usually retail stops. MM's can get in at a better price before moving lower and take out the weak hands.

Taking some off the table is good practice, and if you had the balls you could have had orders to sell at the first swing high where price spiked too before continuing down. I often do this but did not on this trade. I still have a sell position on.

Will price take out liquidity below? It's still high probability unless news, or a Trump Tweet changes that

I may make a video going over these concepts a bit more. In the meantime, let's see what happens.
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SentiFX Aug 29, 2019 11:37am | Post# 23

I have a problem with an apparent contradiction in your first post. You indicated that support and resistance levels don't work as expected yet you indicated the potency of market structure. Technically, a key aspect of market structure trading is the potency of support and resistance zones. KP
There is no contradiction. I said the traditional concept of support and resistance is a lie.

Using the concept of Support and Resistance can be futile because when someone says "Support" they are assuming that price will hold because there are a lot of buy orders or buyers at that zone and price will go long from there. By saying "Resistance" then there is an assumption that there are a lot of sell orders at that area that will make the area a great place to sell. Typically this is just a single line where price seems to bounce from. How many times have you tried this only to have your stops blown through after?

If futures, you could gauge the buying and selling pressure because you can see the bids, offers, limit orders, and the buying/selling pressure.

In Forex, we do not have that luxury but there are concepts that can be exploited instead.

I have found that immediate, short term behavioral trading psychology and sentiment steer price in a direction that will likely continue in that direction unless something changes that. And all we are looking for as traders is direction and probabilities that it will work out. Then we manager our risk and let it play out.

Are there value areas that price gets attracted to time and time again because buyers and sellers can agree that a zone is a fair value? Yes.

But are those areas guaranteed support or resistance? No.

Do those areas make for good targets or to take some off the table? Yes.

If price blows through those areas and pulls back, is it a good entry point for continuation? Yes.

Do Banks and MM's know where the liquidity is - just like a price ladder in futures? Yes.

Hope this helps clarify.

tinnitus Aug 29, 2019 11:39am | Post# 24

Wonderful thread. As AUDUSD is currently 80% long, do you expect a move down to the red line?

Apologies if I am misunderstanding - but you seem to be joining the 'stop hunt' but aren't MMs/etc looking for liquidity because the retail traders are actually correct, just highly levered? Effectively you are trading into an expected bounce, otherwise you aren't participating in a stop hunt but an actual move.

Wouldn't it be safer to buy the dip, i.e. to buy EURUSD at 1030-40?

https://www.tradingview.com/x/CP6dKlbJ/

SentiFX Aug 29, 2019 11:50am | Post# 25

Where are traders trapped?

Where is the pain?

Where are their stops?

KeenPips Aug 29, 2019 12:00pm | Post# 26

If this was what you wrote and stated in your first post, I would have made a totally different comment. From what you wrote below it is clear that the problem is your concept of 'traditional' support and resistance. And also your idea of how it is traded or beng traded. Only novices will trade a support or resistance the way you stated and I hope your thread makes it clear and help its followers know how to trade support and resistance.

Trafe safe.

KP

{quote} There is no contradiction. I said the traditional concept of support and resistance is a lie. Using the concept of Support and Resistance can be futile because when someone says "Support" they are assuming that price will hold because there are a lot of buy orders or buyers at that zone and price will go long from there. By saying "Resistance" then there is an assumption that there are a lot of sell orders at that area that will make the area a great place to sell. Typically this is just a single line where price seems to bounce from....

SentiFX Aug 29, 2019 12:03pm | Post# 27

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Is the liquidity area support or resistance? If we call it support, then we are choosing the top arrow. If we are calling it resistance, we think sellers will sell there. But the bottom line is we do not know at this time and for this trade it does NOT matter. We already have a target area.

We have to see how it plays out if liquidity is taken. The trade will have to develop. The traders who become trapped by picking a side at that point will help determine future direction.

When you can clearly see one side being trapped more than another, you'll have a clue at which direction price is likely to go to create more and more pain until they add to the short term directional move.

Someone will say, aha, see it is support, or resistance. But really it is just behavioral psychology playing out by trapped traders who chose the wrong direction.

When price gets there again in the future, there will be different players and psychology at play.

This is why I do not think of it like "support or resistance." It is trapped traders exiting their positions at close to breakeven as possible at a small loss instead of a large loss... and momentum traders jumping in on the pullback.
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SentiFX Aug 29, 2019 12:13pm | Post# 28

If this was what you wrote and stated in your first post, I would have made a totally different comment. From what you wrote below it is clear that the problem is your concept of 'traditional' support and resistance. And also your idea of how it is traded or beng traded. Only novices will trade a support or resistance the way you stated and I hope your thread makes it clear and help its followers know how to trade support and resistance. Trafe safe. KP {quote}
I appreciate your comments, but I am not trying to teach how to trade "support or resistance." Even trading value areas would need some sort of understanding of how price moves.

If you were what I'd prefer to call a value area trader - from one value area zone to the next... you need your directional information from somewhere. Either price action, actual price ladder information, sentiment, news figures, etc.

What I am trying to show is that retail positioning is typically wrong and their liquidity is a great target for entries and exits using the most recent market structure.

You could trade any style and take advantage of these concepts and ideas to incorporate into your style.

I am simply aiming at retail stops and using their positioning and market structure for bias, entries, and exits.

KeenPips Aug 29, 2019 12:17pm | Post# 29

Noted.

Trade safe.

KP

{quote} I appreciate your comments, but I am not trying to teach how to trade "support or resistance." Even trading value areas would need some sort of understanding of how price moves. If you were what I'd prefer to call a value area trader - from one value area zone to the next... you need your directional information from somewhere. Either price action, actual price ladder information, sentiment, news figures, etc. What I am trying to show is that retail positioning is typically wrong and their liquidity is a great target for entries and exits...

Js3mwtRc Aug 29, 2019 12:19pm | Post# 30

{quote} I appreciate your comments, but I am not trying to teach how to trade "support or resistance." Even trading value areas would need some sort of understanding of how price moves. If you were what I'd prefer to call a value area trader - from one value area zone to the next... you need your directional information from somewhere. Either price action, actual price ladder information, sentiment, news figures, etc. What I am trying to show is that retail positioning is typically wrong and their liquidity is a great target for entries and exits...
You can't show a system but can you show me an example of how would you best enter the last EURUSD downswing from 1.1165 and not what you really did, or how you trade.

Oc6oph Aug 29, 2019 12:23pm | Post# 31

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My thoughts on support and resistance or levels are that price often comes well below or above before turning. If support and resistance worked it would be easy and everyone would be making money. And as far as stop hunts I believe the market sometimes has to go to stop locations to get orders filled. Here’s a example of a level or support on USDCHF. There was a double bottom then price went below before coming back above this double bottom
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SentiFX Aug 29, 2019 12:30pm | Post# 32

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{quote} You can't show a system but can you show me an example of how would you best enter the last EURUSD downswing from 1.1165 and not what you really did, or how you trade.
I saw the sentiment was heavily long and getting heavier when price was below the red line so I put sell orders in at the red line and got filled there.

That's where understanding market structure and how price typically behaves comes in.

Did price HAVE to hit my sell limit order? No.

But I trade the probabilities, and adapt as the information unfolds.
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KeenPips Aug 29, 2019 12:40pm | Post# 33

Good pont there mate. Let me add that there is no certainty that any S/R zone will hold. The issue is probability. Any S/R zone that sees a setup price action and other confluence factors is more likely to produce a better result than one without such confluence factors. So a trader has to look for such a zone and such factors, offering a confirmation, before entering a trade. And that is where structure-based price action trading comes into play.

Trade safe and prosper.

KP

My thoughts on support and resistance or levels are that price often comes well below or above before turning. If support and resistance worked it would be easy and everyone would be making money. And as far as stop hunts I believe the market sometimes has to go to stop locations to get orders filled not. Hereís a example of a level or support on USDCHF. There was a double bottom then price went below before coming back above this double bottom {image}

Js3mwtRc Aug 29, 2019 12:42pm | Post# 34

{quote} I saw the sentiment was heavily long and getting heavier when price was below the red line so I put sell orders in at the red line and got filled there. That's where understanding market structure and how price typically behaves comes in. Did price HAVE to hit my sell limit order? No. But I trade the probabilities, and adapt as the information unfolds. {image}
Thanks for the answer, that spike was too close! Let's see how the price will react at 1.10500, many traders should took profits.

SentiFX Aug 29, 2019 12:50pm | Post# 35

Good pont there mate. Let me add that there is no certainty that any S/R zone will hold. The issue is probability. Any S/R zone that sees a setup price action and other confluence factors is more likely to produce a better result than one without such confluence factors. So a trader has to look for such a zone and such factors, offering a confirmation, before entering a trade. And that is where structure-based price action trading comes into play. Trade safe and prosper. KP {quote}
I agree and for many years I focused on horizontal zones for magnets to look at entries and exits and used PA for direction as you mention.

I've tried many trading styles over the years and over time began understanding more and more how the market worked and the games that are typically played.

One thing I know for sure is retail traders typically bleed money and that can be found from many brokers articles on the topic.

The day that I decided to find a way to target retail was when I had a shift in the way I thought about trading and how the markets move short term - for any market.

SentiFX Aug 29, 2019 12:52pm | Post# 36

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Target Hit.

All positions closed.

What happens next?

I currently don't care. I will monitor sentiment FIRST, then look at market structure, then take a trade.
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Oc6oph Aug 29, 2019 1:09pm | Post# 37

Good pont there mate. Let me add that there is no certainty that any S/R zone will hold. The issue is probability. Any S/R zone that sees a setup price action and other confluence factors is more likely to produce a better result than one without such confluence factors. So a trader has to look for such a zone and such factors, offering a confirmation, before entering a trade. And that is where structure-based price action trading comes into play. Trade safe and prosper. KP {quote}
Well thereís certain things one can look for in price action when these supports or resistance breaks. Also these people talking about levels donít know anything about trading. The market just doesnít work like that

Jp1 Aug 29, 2019 1:19pm | Post# 38

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[quote=SentiFX;12472839]{quote} I agree and for many years I focused on horizontal zones for magnets to look at entries and exits and used PA for direction as you mention. I've tried many trading styles over the years and over time began understanding more and more how the market worked and the games that are typically played. One thing I know for sure is retail traders typically bleed money and that can be found from many brokers articles on the topic.

interesting thread, but didnt you find ur horizontal levels worked? Obviously not every time, but if uve got them in the right spot with added confluence?
from ur chart you post i see a h&s pattern at one of the shoulders of the previous drop, which also looks about the mid-point of the previous swing low. If u missed the best entry (or if adding to first position) then theres a second entry at the previous resistance....which all leads to ur t/p of the low of the most recent swing high. No massive stops needed at any of those levels? Well thats what i see mate - probably missing something!
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SentiFX Aug 29, 2019 1:19pm | Post# 39

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Wonderful thread. As AUDUSD is currently 80% long, do you expect a move down to the red line? Apologies if I am misunderstanding - but you seem to be joining the 'stop hunt' but aren't MMs/etc looking for liquidity because the retail traders are actually correct, just highly levered? Effectively you are trading into an expected bounce, otherwise you aren't participating in a stop hunt but an actual move. Wouldn't it be safer to buy the dip, i.e. to buy EURUSD at 1030-40? {image}
AUDUSD and NZDUSD (currently overlapping) are in the strong sell area, and definitely trade-able. If I were to trade them I would just aim for sell side, looking at stops and using market structure to enter/scale in and exit/scale out.

I choose EURUSD because it had retail piling in long over time faster than any other currency. That's why it was such a huge bubble on that graphic I showed.

Current Sentiment
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Shabs19 Aug 29, 2019 2:34pm | Post# 40

Interesting graphic, is it software based or Freehand drawing ?


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