Your feet feed the accounts of other traders.
A beginner forex trader asks: "Why does the market always take my stops?" What if I told you that placing stop-loss is necessary so that larger traders can trade in the market, how would you feel? Would you believe it? One of the first things that you hear about forex trading is that, without setting up stop-loss, you will only lose your money until you merge your entire account.
The uniqueness of the stop orders is that they, being pending orders, expect their execution at a predetermined price. But they are executed according to the MARKET price. Market orders are executed at the best available price and are prone to slip, especially in inactive markets and in conditions of pronounced volatility.
When stop orders are triggered, their important function is that they add momentum to the market and at the same time use the liquidity present on the market.
Depending on how you trade, further information can help you: Prevent slippage; Trade on one side with larger players; Get a quick profit; Collect money from traders-beginners. The picture below shows the conventional placement of a stop order.
What did each trader hear? "When opening a position, place a protective stop just below the maximum / minimum price level." The reason is that this level was defined as an important level of support. What else is placed in the support area? Limit orders of traders to buy, which determined the support zone and wait for the time to open the position when the level is re-tested. Is there a large number of stops under each level? It depends on the size of the timeframe and how quickly the price leaves this zone at the time of purchase. In general, price fluctuations at higher timeframes will contain more stops than at lower timeframes.
On the hourly chart, the reversal point can stay untouched longer, and therefore more people can see it than on a 5-minute chart. A faster price movement from the support zone can explain the fact that this direction of the price movement is supported by the expressed interest on the part of traders, and therefore, there may be more market participants, larger positions and, ultimately, more stops. When the price reaches this level, traders are still interested in long positions, but this time the price does not beat off this level, as one would expect. It does not break it, does not show lower lows, but displays lower highs. If you were interested in opening a long position right now, what would you do? The average trader who plays on the "rebound" of the price from the support level would open a long position by placing the stop just below the support level. If you had a limit order that would not have been executed yet, I would have canceled it with the warrant. If you wait for a while to enter the long lines, then restraining yourself from entering the market would be a good idea.
Candles / bars display lower highs; The price does not rise as quickly as one would expect; You know that just below the support area is full of stop-orders. What happens next? The price moves under pressure down and pierces the stops of traders who have long positions open, and, as we recall, when the buyers' stops work, they are market orders for sale, and they force the price to move further down. And traders who wait for the opening of short positions, open them, as the price breaks through the level of support, but then the market takes them out, "eats", because the price goes higher.
Those traders who were initially set up for long positions and which were thrown out of the market by punched stops, help push the price up. New stops are placed below the new level, before us - "Groundhog Day". And all that was just played out, will be played again and again ... only at different price levels.
I hope you understand the concept of what is stated in this post. This can be used in different variations, for example, to get a quick profit when the price is knocking out the stop-loss of other players, not as smart as you. I will not describe any specific trading strategy because: Understanding the concept is the most important Application of your understanding will allow you to develop your own strategy You need to find several valuable ways of applying this information. For those of you whose stop-loss market usually eats, this information may be a revelation. Always think about where the stop loss of other players is and remember that the market wants to take them.