WHO, HOW AND WHY DOES THE STOP LOSS WORK
This topic will be very useful for all novice traders, because in order to start earning, you need to understand the structure of the market very well. Without this knowledge it is impossible to move on and develop. "I very often notice how, apparently, the sleeping price suddenly rises on its hind legs and demolishes all the stops of traders. What is this for? How should the stockbrokers profit from this? "One must understand that very often market makers (large traders, stock market professionals), especially lead the price to the level of accumulation of orders. These levels allow them to open very large positions. After all, what is a stop-loss? Stop-loss - this is an order that, when triggered, closes the position on the market.
Substituting his large application in the place where, most likely, this stop-loss will be executed, the professional has the opportunity to open his trading position without problems. Those. stop-loss is a market application, which will affect the large bid placed by the market maker. In this way, by ripping off stops, a professional can provide himself with a huge flow of liquidity. At the same time, very often the price is deliberately taken not only to the levels used to install the stop-loss, but also to the levels in which new unfounded positions of traders will be open with high probability. Usually, this can be clearly seen in corrections to the main trend, where small traders start to hope for a turn and open positions against the main trend.
Once a large player meets his demand, and the small traders run out of money, then the market unfolds. It turns around because everyone who wanted to sell has already been sold. There is no one to sell. The more traders have opened the wrong positions, the stronger will be the movement in the opposite direction. This is the whole mechanism. How to avoid this trap of market-makers? Can not put feet at all or put them, but make them very wide? In fact, in order to avoid this, you need to understand where the professional enters. One way is to monitor the volume of trades and interpret it correctly. Manipulation of the size of stops in this case, especially you will not help. Of course, they also play a role, but not the most important. The most important thing is the correct entry point, which increases the likelihood of a market reversal. What areas of the schedule are used by the major participants of the stock exchange in order to lure more players into the market? Let's try to figure it out. On the price chart, there are always zones that will be of particular interest to market participants. The most common zones are extremes, i.e. previous highs and lows, which are clearly visible on the chart. Most traders work at breakdown of these levels.
But according to the old tradition, most beginning traders do this at the moment when the movement has already passed. There are always people who do not believe in the movement, are out of the market until an explicit trend is formed. Their patience ends usually at the end of the movement. Serious pressure of these market participants on the price just happens when the breakdown of extreme values. After all, imagine: you see that 3 times in a row the price breaks its maximum values and constantly afterwards rushes upwards. Most likely, after this you, like many other traders, want to open a long position with the next approach to a new high. But the more orders for purchase, the higher the probability of a trend reversal. Knowing this, professional traders will place bids for sale just above the maximum (to absorb all market orders for purchase). Plus, at the breakdown of the maximum, stop-loss sellers will start to activate, which caught the reversal and opened short positions too early.
These applications will also be absorbed with great pleasure by large players. Of course, you should understand that professional traders do not open positions on every new high. They begin to operate under certain conditions.