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Any use for stop hunting?

  • #21
  • May 14, 2007 11:03pm May 14, 2007 11:03pm
I have found out that if my position hits SL, I should reverse my position. That way I will make lots of money.
  • #22
  • May 14, 2007 11:33pm May 14, 2007 11:33pm
  •  tesla
  • Joined Oct 2006 | Status: Friendly Neighborhood Programmer | 533 Posts
Quoting Lou
DB,,

I see that most of the posts have missed your actual point.

Dark says he goes after stops, but I wonder? I mean He cant move the market, so he (if he is telling the truth about it) must have an idea what the marketmakers are thinking/doing. If that is true. How does he know?

As far as that investopedia link goes by Boris S. I must have read it 4 or more times in the past. I simply think his explanation is not actually describing targeting stops well enough for (us) me to make use of it.

It doesnt use the typical example that you describe and that the chart posted above so graphically depicts.

I would like to see more on stop hunting as a trading tactic.

Lou
Boris posted this to ForexFactory awhile back (about six months or so I think) and it sparked quite a bit of discussion. The thread eventually got pretty argumentative and was closed by admins. I can't find it now, so who knows what happened to it. To make a long story interesting, I invested some time and coded this as an EA just to backtest (against multiple pairs) and it performed very poorly.

Many of us are convinced that stop hunting is a real market mechanic but I haven't yet figured out how to exploit it. I'm still working on it though.
  • #23
  • May 15, 2007 12:54am May 15, 2007 12:54am
can we lure the broker with stop loss while we put another position in that price?.....like going fishing.....
  • #24
  • May 15, 2007 1:58am May 15, 2007 1:58am
Very interesting topic :-)

I have often thought about stop hunting near failed trend line breakouts. Stop and reverse order could be placed at the typical point where lots of stop losses clustered (maybe 20 pips below the failed trend line break). The more of an obvious breakout you have, the better the cluster of stop losses if it fails is what I'm guessing. I plan to back test this idea when I have time.


It would be good to see others post ideas for stop hunting.
  • #25
  • May 15, 2007 5:08am May 15, 2007 5:08am
Well, I was thinking it over and got some ideas, but I dont know how valuable they are, I guess they would need some testing.

First of all come situations when price ranges in a channel of 10-20 pips (like yesterday afternoon Eur/Usd, Gbp/Usd and possibly other pairs). When price ranges, amount of short orders is equal to amount of longs, so we can assume that stop losses are equally distributed on the both sides of the channel and from my own experience this stoplosses are quite close to the borders (2-10 pips). Also there is a number of limit orders there from people waiting for a breakout. So, we can assume (again) that big players will try to get these orders/SLs triggered and most likely they will try to collect them from both sides of the channel. If you look at today's price action, price first moved down, triggered orders and stop losses, then moved up, collected orders there also and now it is finally on a real move down. At least thats how I can explain this behavior. If it happens always like that we also can easily use this pattern.

Actually what I just said is very similar to fxprocessor idea.

I think a good way to see where stop losses are is to look at histograms from trade station which TheDownRiverTrader uses for his River theory.
  • #26
  • Edited 8:42am May 15, 2007 5:21am | Edited 8:42am
Quoting Lou
DB,,

I see that most of the posts have missed your actual point.

Dark says he goes after stops, but I wonder? I mean He cant move the market, so he (if he is telling the truth about it) must have an idea what the marketmakers are thinking/doing. If that is true. How does he know?

As far as that investopedia link goes by Boris S. I must have read it 4 or more times in the past. I simply think his explanation is not actually describing targeting stops well enough for (us) me to make use of it.

It doesnt use the typical example that you describe and that the chart posted above so graphically depicts.

I would like to see more on stop hunting as a trading tactic.

Lou
Good post. The article was interesting, but really describes what is called the "short squeeze" in the equities universe. And only at round numbers.....

We're talking about a reversal at the stop price, not a blow through. Maybe all we have to do is:

1. Say, "where would I put my stop according to all I've been taught about TA?
2. Wait until price hits it (or set an alert!) then see if it reverses.
3. When price confirms, fade the breakout. Place a tight stop just across the reversal point in case it's a real breakout!
  • #27
  • May 15, 2007 5:33am May 15, 2007 5:33am
Quoting DrainBamage
Well, I was thinking it over and got some ideas, but I dont know how valuable they are, I guess they would need some testing.

First of all come situations when price ranges in a channel of 10-20 pips (like yesterday afternoon Eur/Usd, Gbp/Usd and possibly other pairs). When price ranges, amount of short orders is equal to amount of longs, so we can assume that stop losses are equally distributed on the both sides of the channel and from my own experience this stoplosses are quite close to the borders (2-10 pips). Also there is a number of limit orders there from people waiting for a breakout. So, we can assume (again) that big players will try to get these orders/SLs triggered and most likely they will try to collect them from both sides of the channel. If you look at today's price action, price first moved down, triggered orders and stop losses, then moved up, collected orders there also and now it is finally on a real move down. At least thats how I can explain this behavior. If it happens always like that we also can easily use this pattern.

Actually what I just said is very similar to fxprocessor idea.

I think a good way to see where stop losses are is to look at histograms from trade station which TheDownRiverTrader uses for his River theory.
You've brought up some good points.

Traders looking for a breakout put stop orders on each side of a range. Buy stops above, sell stops below.

Another method is to put limit sells above, and limit buys below. This works on the idea that the market will hit it then return to the original price level.

Alex Elder points it out well in "Trading for a Living". In a trend, you obviously buy strength or sell weakness. In a ranging market, you buy weakness and sell strength.

Now, how would this apply? In a ranging market, I think we can say that traders with open positions are either looking for a scalp, or a breakout. The latter group are wrong if it's still ranging. This is where I was yesterday, my system said take a short trade, but it's a trend following system. So I got stopped out at the top of the range.

Many, many traders (like myself) don't know how to identify a range and trade it correctly. Like most things, it's easy to see after it's over. So, we could safely say that nearly all noob traders do what I did, that's what we've been taught.

I'm thinking (or attempting to) while I'm typing. Comes back to "in a range, buy weakness and sell strength".

Probably there are several bounces before the breakout. Also, I would say from what I've seen, but without having done any real analysis, that most breakouts are false breakouts.

When it gets to the top of the range, the scalpers take their profit and sell, the wrong trend traders who were short get scared out and buy, or their stop gets hit and they buy. They got in too early as it headed down or even as it broke out; the scalpers and range traders bought.

Bottom line: gotta learn how and when to fade. Is this stop hunting? Not really. The stops were buys.
  • #28
  • Edited 7:42am May 15, 2007 7:26am | Edited 7:42am
Well, I just did it again. I won't post the chart, but in my journal for the day, I called the picture "Failure to recognize a ranging market". And, "failure to manage trade properly". I used signals from two systems to enter. Signals from one of the systems reversed and I wasn't watching.

The earlier chart I posted is the same thing, not nearly so obvious as today's. Failure to recognize a ranging market.
  • #29
  • May 15, 2007 7:51am May 15, 2007 7:51am

Here is a trend trader, where does he put stops.

Here is a range trader/scalper, where does he put stops.

Here is an order board where you can see, to a degree, where stop/limits are.

Presumeably having identified likely areas of stop clusters for both trend and range traders, you can seek confirmation from the orderboard and trade on discrepancies.

Maybe?
quote of the day: . It's like deja-vu all over again
  • #30
  • May 15, 2007 8:29am May 15, 2007 8:29am
you guys need to think more about the micro-structure of the forex market.

Oh yeah I use an ECN.

  • #31
  • May 15, 2007 8:35am May 15, 2007 8:35am
Quoting blueruby
You've brought up some good points.

Traders looking for a breakout put stop orders on each side of a range. Buy stops above, sell stops below.

Another method is to put limit sells above, and limit buys below. This works on the idea that the market will hit it then return to the original price level.

Alex Elder points it out well in "Trading for a Living". In a trend, you obviously buy strength or sell weakness. In a ranging market, you buy weakness and sell strength.

Now, how would this apply? In a ranging market, I think we can say that traders with open positions are either looking for a scalp, or a breakout. The latter group are wrong if it's still ranging. This is where I was yesterday, my system said take a short trade, but it's a trend following system. So I got stopped out at the top of the range.

Many, many traders (like myself) don't know how to identify a range and trade it correctly. Like most things, it's easy to see after it's over. So, we could safely say that nearly all noob traders do what I did, that's what we've been taught.

I'm thinking (or attempting to) while I'm typing. Comes back to "in a range, buy weakness and sell strength".

Probably there are several bounces before the breakout. Also, I would say from what I've seen, but without having done any real analysis, that most breakouts are false breakouts.

When it gets to the top of the range, the scalpers take their profit and sell, the wrong trend traders who were short get scared out and buy, or their stop gets hit and they buy. They got in too early as it headed down or even as it broke out; the scalpers and range traders bought.

Bottom line: gotta learn how and when to fade. Is this stop hunting? Not really. The stops were buys.

Who are you taking money from when trading?

Who is taking your money when you lose?

Why?

Understanding these questions would improve anyones trading.

OK OK

I will bow out
  • #32
  • May 15, 2007 8:39am May 15, 2007 8:39am
Quoting mbqb11
you guys need to think more about the micro-structure of the forex market.

Oh yeah I use an ECN.

What's an ECN?

OK, you've made me think.

Let's say, instead of going short like my system tells me, I think, "where would I put my stop" and put a sell limit order way up there 35 or 40 pips above current market.

A bunch of other traders are going short and putting their buy stops there. I want to sell there.

Then, there's a time when liquidity is low. During that microsecond when no orders are on THAT broker's board, my order and theirs are the only ones the computer sees.

For that microsecond, I control the market. Their stop is hit, I get my order filled.

This message will self destruct in 10 seconds......
  • #33
  • May 15, 2007 8:46am May 15, 2007 8:46am
Quoting mbqb11
Who are you taking money from when trading?

Who is taking your money when you lose?

Why?

Understanding these questions would improve anyones trading.

OK OK

I will bow out
These are good questions. When the market takes a big move in minutes, I assume it's a bank, hedge fund, etc. Unless it's news, then everyone's into the act doing their own thing to take advantage.

When the market is moving slowly I assume only other traders and speculators are in the mix.
  • #34
  • May 15, 2007 8:48am May 15, 2007 8:48am
Here's a good thread on trade management.

http://www.forexfactory.com/showthread.php?t=3654
  • #35
  • May 15, 2007 9:22am May 15, 2007 9:22am
Quoting tesla
Boris posted this to ForexFactory awhile back (about six months or so I think) and it sparked quite a bit of discussion. The thread eventually got pretty argumentative and was closed by admins. I can't find it now, so who knows what happened to it. To make a long story interesting, I invested some time and coded this as an EA just to backtest (against multiple pairs) and it performed very poorly.

Many of us are convinced that stop hunting is a real market mechanic but I haven't yet figured out how to exploit it. I'm still working on it though.
yes, very poorly is an understatement, how about extremely poorly lol. Use it only if you need a tax write off
  • #36
  • May 17, 2007 5:42pm May 17, 2007 5:42pm
Thanks kihl!

I found this pdf, very interesting reading, I also read a very good post of Darkstar on structure of brokers http://www.forexfactory.com/showthread.php?t=7484 , it explains a lot.
It really looks like you need an ECN type broker to be able to take advantage of stop losses. I installed a demo from one of ECNs, will try to learn how it works.
  • #37
  • May 17, 2007 6:08pm May 17, 2007 6:08pm
Quoting blueruby
These are good questions. When the market takes a big move in minutes, I assume it's a bank, hedge fund, etc. Unless it's news, then everyone's into the act doing their own thing to take advantage.

When the market is moving slowly I assume only other traders and speculators are in the mix.
When the Banks 'Move In' they could give a rat's as$ about us. They assimilated both the micro and macro Global Ecconomics and decided that "A" was worth "A +- B"
"RUN... It's a Stampede."
95% or whatever, have no clue why they are running. They are only doing so because everyone else is.
Ever notice that the Lead Bull seldom goes off the cliff?
  • #38
  • May 17, 2007 9:16pm May 17, 2007 9:16pm
Here is a good read for everyone:
The Winners and Losers of the Zero-Sum Game: The Origins of Trading Profits, Price Efficiency and Market Liquidity

It describes the different market participants and how they profit/lose between each others.
Attached File(s)
File Type: pdf Zerosum.pdf   80 KB | 441 downloads
  • #39
  • May 17, 2007 9:59pm May 17, 2007 9:59pm
Quoting blueruby
Damn it. As I was typing the above, guess what happened!

looks like offers of a good size at the 163.20 handle.
  • #40
  • May 17, 2007 10:39pm May 17, 2007 10:39pm
Quoting blueruby
Damn it. As I was typing the above, guess what happened!
As darsktar said, if u are a tech. trader they know where the stops are. You, in this case placed the stop at the sweetest possible position for stop hunters. I recommend placing it 15 pips above Support or Resistance or else u will get stopped out. The market is much eaisier to move than u think. Much much easier. If u cant manage the risk of the extra 15 pips then dont trade it.
100% of traders are losers. Just that some win more than they lose!
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