Stop Hunting using Sentiment and Market Structure

This is an excellent thread.

For those getting hung up on SentiFX's indicator, please do not derail the thread. The information that he is using to build his bubbles is freely available for anyone willing to put in a bit of effort. I have a much more clunky version (see below) but you can simply keep an eye on one of the sites that post the info like Myfxbook or Oanda to get it for yourself.

The important message here is that if you concentrate on pairs that have extreme retail sentiment (say over 80%) and those pairs have decent volume, you are greatly increasing the probability of making successful trades using your favourite trade entry identification methods if they are against the crowd. SentiFx is using obvious stop hunting areas for his entries which is also my personal preference. But this is a strategy that has been around a long, long time and is not unique to George or FractalFreak so please relax and just try to learn what you can from this valuable thread.

I attach part of the Myfxbook sentiment page (accessible to all) that shows retail sentiment on USDCAD was 88% long today (hence SentiFX's bubble to look for shorts).

I have been collecting the sentiment data from Myfxbook for a little over a year as it gives another piece of information that I also find valuable. On my rather messy chart, you can see the historic percentages on the chart, with a green line under the long percentages and a magenta line under the short percentages. Those lines are at the average retail long and short prices - are we surprised that price is almost always between the two? i.e. Neither retail long or short is in profit!

Unfortunately I can't share my very clunky indicator as I could only obtain the data from Myfxbook using my personal login. But we are all free to look at the data there anytime we wish.

Many thanks SentiFX for this valuable thread.

Good point, that last graphic was taken at the time of the post if that helps.

Will include in future version in UTC time

So I thought I’d have a go.....Following from sentifx’s post, what do you think ?

USDCAD sells from the blue areas
USDJPY BUYS
EURUSD SELLS
USDCHF BUYS

Be careful with USDCAD, Even though it was showing a strong sell - that bubble popped.

Retail flushed.

No trades on Sentifx, just some practise

Please explain your comment also. Are you talking about the wick above those zones has cleared out retail that we’re selling down? Their stops?

Thats why market structure analysis is more important, You will see resistance turned support in July. Selling Dip was deliberate ploy

Always useful to draw a horizontal line where price is at, zoom out and look left.

I see the PM of Canada declared an election today.
This created large risk off bias on the Canadian dollar

News always trumps charts or any other analysis as markets will quickly reprice the new information.

That being said - as soon as the bubble popped (i.e. went from REALLY BIG to normal sized) then I wasn't interested any more. And to top it off, retail stops were taken. The trade at that point would have been long - even though it always seems at the time riskier.

This is exact same pattern we saw with EURUSD where I said I was going long after stops were grabbed and bubble had popped. EURUSD went long shortly after.

This is ONE of the many repeatable patterns that you can add to your playbook.

Current Sentiment Snapshot:

Notice Timestamp top right.

Notice USDCAD has moved more into the buy zone and has fallen from grace.

Also notice as you probably would expect if you understand risk on/risk off/safe havens - USDJPY and USDCHF typically are grouped together.

Any idea what trades I'm in and why?

Hint. Look familiar?

Wait, did I just buy the stops of the prior 3 candles?

Buying UJ.

Buying UJ....liquidity gap above still big.........

I would say UJ and UC, both showing retail wrong direction, that sudden spike is a bit of a surprise, no red flag news around.

Except USDCAD is a non-interest at this point.

Good job traders - yes - Long UJ for the Liquidity Gap Fill play.

Why? Because retail is still trying to short it (heavily piling in) & price wants to fill the void.

Psychology: Trade is profitable 30 pips so far.

I could close out now for the win.

Do I close out? No. I have no reason too. The trade idea is still valid - Gap hasn't been filled - Retail haven't removed enough positions (Bubble is still very large and at an extreme!)- so the idea is still in tact.

I have to let it play out. Embrace the variance of the edge.

Win or Lose - Doesn't matter.

I was meaning also USDCHF, retail wrong direction , plenty of stops to go back up and pick up?

Psychology:

If controlling your emotions is very difficult at this stage of your trading. You would have 3 options:

1. Use Lower Leverage (it's better anyway) 100:1 or even 50:1 is account suicide and emotional capital suicide.

2. While winning like in this situation - you could close out half your position and let the rest ride.

3. You could do the same as 2, but move stop to break even either for the trade or break even entry point so you bank half.

Those concepts took a while to really embrace and they helped me jump leaps and bounds in my psychology for the first many many years of trading.

#1 is even more important when you start having a decent size account. It's easy to want to bet big and want to win big when you have a small account. But that is the fastest way to blow it.

I blew a few accounts before I finally realized that if I kept going that direction - it would be game over for good. I'm glad I opened up to changing my mindset and trying new ways of thinking.

I haven't blown an account in a very long time. Now, I grow my accounts.

It takes a while to have the confidence to let it play out and also to understand that trading is really a probabilities game like the casino. You win hands, you lose hands, if you're not over leveraged and you have an edge.... you will win over the long term. Simple as that.

We have edge here as you've seen over and over and over.... so let the probabilities play out. Our edge is strong.

@SentiFX

Thanks a lot for starting this amazing thread! There are a lot of valuable information in this thread. I'm very interested in this topic and looking forward to learning more from you.