Have you ever felt like your placing a trade in the market at exactly the wrong time? You see a perfect trade setting up and enter , instantly you see the price stop on a dime, hit your stop loss, and then run in the direction of your original trade strategy. If you nodding your head agreeing with me than you have been caught by the trap, of what I call a day trading stop run reversal . Institutions, market makers, and banks do not intentionally move the price in this way to specifically take out the stop losses of the average traders , quite simply they do it to profit, and I will exaplin how as we go. retail traders do not have the ability to start or continue the moves in the forex market, we simply buy or sell to join the ride. Keeping this in mind, if we can begin to recognize frequently chart patterns such as stop run reversals , then we, the retail forex trader can effectively learn to enter right when big money is coming in to move the market. Let examine this forex chart pattern more in depth and explain the process, the flow of orders, and supply/demand surrounding these stop run reversal trade setups.
Stop hunting is a practice well know in this market, but the reason for “hunting stops” is not as well know . Then what reason is behind these moves just past a major area of support/resistance followed by a complete flip in the direction of the price? Quite simply put, large banks and financial institutions have to trade and disperse huge sums of money and [SPIN]want the very best price possible . If they want to go short the GBP/USD for example, they will push the price up past the previous high by a few pips or more and in doing so trigger the stop losses they know are sitting just beyond the last swing high. This gives them the quanaty of orders to satisfy their “demand”. By selling in the area of all the buy orders (stop losses) allows them to trade huge sums of money and not cause the market to plummet down as fast as it would without all the freshly created “supply”, thus giving them a better overall entry .
Another factor that supports the stop run reversal trade strategy is that of the breakout trader. Many retail traders buy a break of a previous high, and sell the break of previous lows. Knowing this , not only does “smart money” get the orders from those stopped out in the example above, but they as well have all the forex retail traders getting long on the breakout (supply) which only gives them additional orders to sell into, to meet their demand. On top of all the previously mentioned as the larger bank or institution puches the forex market down after a stop run reversal setup they know that all those that bought the false breakout higher will need to begin closing their positions. Its a beautiful trade setup for those moving huge sums of money , they push the forex market up into an area of huge supply (stop location, in addition people buying a breakout) and thus meet their demand. Then after the false break is seen, the breakout traders are forced to close their trade (sell) and therefore fuel the large banks short trade . Additionally by the time this is recognized by the average forex trader the demand is so high the market has no other option but to continue down! This example was of a sell setup on a stop run reversal setup but it will function the same for a buy setep.
In conclusion the lets break this forex trading strategy down into 3 main points. First identify previous major intraday swing in the market. Second wait for that level to break by atleast a few pips, and then quickly retrace back . Third the price must form a reversal candle formation off that area of support/resistance. This forex trade strategy is similar in many ways to day trading an area of support or resistance, but creates larger moves in the forex market! Additionally here is the link to watch our no cost forex education video on the stop run reversal setup. Only “smart money” can move the market up and then quickly reject it which should alarm you to the fact that, this is a “smart money” market move! Knowing this , jumping on the wave their creating results in some hugely profitable forex trade setups. Allow the forex market show you what its doing first, stop trying to be the first in, and just get on the wave once it’s started! If you would like to view us trade this great forex trading strategy live, along with our other forex setups, then I welcome you to try our 10 day trial to the live forex education room.
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Hassam 