Dear Mr Webb,
I recently found your web site and I was attracted and intrigued by the concepts you are using in your trading. Seems that the logic behind your trading system is so basic that is really easy to forget… I was trading on and off for a few years without much success and until now I felt in every kind of trap you describe.
Even if I had all the info in front of me I wasn’t able to understand what was really the problem because I was looking somewhere else. I guess I’m not the only one in this situation but this doesn’t make it easier to swallow 🙂
I just wanted to say a big thank you for all the information you provide on your web page and on your market analysis.
I bought both of your books (thanks for the free one you just sent) and I’m studying the articles from the webpage. Once I remembered why the market is moving and understood what bank traders need us to do in order for them to be able to place trades and make profit, it was like an “Eureka!” moment and I think this was the true start of my journey to profitability.
Of course I’m not yet there, but at least I’m confident I’m on the good path.
But enough about this, I’m sure you hear from losers every day, haha.
if you don’t mind, I have a question about using the Oanda order book.
I noticed you use the chart on the left, with pending orders, to identify clusters of orders that may be used for stop hunting. But you talk only about the “blue orders”, buy orders above and sell orders below the current price. Zones where bank traders may enter the market using the orders from retail traders so they can place trades in the contrary direction. That’s clear now.
But I didn’t noticed you talking about the “orange” orders, sell orders above and buy order below current price. Orders placed by retail traders trying to anticipate a rejection from support or resistance.
What is your opinion about this kind of orders? Do they offer any info we can use? I couldn’t find any article of yours about this (at least not yet).
For example, what is your opinion about the current situation on EurUsd? I attached a screenshot with the order book.
I see lots of traders trapped in losing buy trades, but there are no significant sell orders below current price. Does that mean that almost all the long traders are without a stop loss? I expected the majority to be stupid, but not at this level…
My question is about the cluster of buy orders below 1.1000 I think they are from the retail traders that want to be contrarian and expect the price to bounce back up from the low made on 8 July.
How do you think the bank traders will take advantage of this? Do you expect them to add to their short trades placed Thursday and Friday at aprox 1.114-1.115? Sell orders from bank traders in the area below 1.1 could make the price to fall lower, which could also force many of the traders trapped in losing long positions to liquidate, causing a bigger fall.
Reactive traders will sell later and then the banks could take some profits.
Is this interpretation correct?
If I’m wrong could you please explain how do you see the situation?
Thanks again!
Have a good weekend.
Kind regards,
My Response:
It’s great you’re finding the site helpful!
Let’s talk about the orange orders and then I’ll share my thoughts on EUR/USD.
The orange orders aren’t necessarily placed because traders are anticipating a bounce from support or resistance. While that might be true for some, most orders are simply placed at round numbers because traders tend to favor them.
In the meantime, check out the research paper on the “cool stuff” page.
It talks about the clustering effect of pending orders around round numbers, which might shed some light on why you see those orange orders piling up there.
You’d be surprised how often the majority of traders get it wrong.
Luckily, that’s where we can step in and profit by understanding their actions.
Now, onto EUR/USD:
I believe banks will push the market lower into that cluster of buy orders sitting just below 1.1000. Why? Because the subsequent bounce back up will lure in more retail traders to buy, giving the banks a chance to sell into that fresh demand at a better price.
It’s all about improving their risk-to-reward ratio.
This retracement higher will also create false hope for those trapped in losing long trades. They’ll see the market moving back towards their entry points and might even close their positions at breakeven or a small profit.
The highest concentration of trapped traders is just above 1.1050, conveniently close to that supply zone from last Friday.
If the market does retrace, keep a close eye on that supply zone.
As price approaches, the trapped traders will likely panic-sell at the first sign of weakness, generating even more downward momentum. This could create a domino effect, with more and more traders closing their losing positions and fueling the decline.
It’s a bit of a cat-and-mouse game, but by understanding the banks’ tactics, we can position ourselves to capitalize on these moves.
Don’t forget: Mark the entire area from 1.1050 to 1.1070 as a potential shorting zone. While the supply zone is a prime target, the market could easily turn around at 1.1050, and we wouldn’t want to miss that opportunity just because we were too focused on the supply zone itself.
So, tomorrow…
Keep an eye out for a run into those buy orders, followed by a retracement back up toward that zone.
When the market’s in the 1.1050 to 1.1070 area, be ready to enter if a decent bearish engulfing candle forms. That could be the trigger for a cascade of selling as trapped traders start closing their losing positions.
Remember, flexibility is key!
Don’t get too fixated on a single level or setup. Sometimes the best opportunities arise where we least expect them.
Feel free to reach out if you have any more questions.
I’m always happy to help!
PAN
Continued Questions/Analysis…
Yesterday before I received your email I was thinking more about the EURUSD and reached the conclusion that is better to wait for it to came at about 1.106 and look for signals there.
So, if I was to resume your explanations: the bank traders will stay on the sidelines,and let the retail traders fight against each other. The new suckers (buying at 1.1) scare the old suckers (the ones that already bought and are at a loss). This will generate a chain reaction making the price to move down, probably breaking below 1.1 because there will be no more buy orders there. Then the new reactive traders will sell so the bank traders could use those orders to take profits.
Sounds like a good plan for them.
I will look at the price action to see how it unfolds. Your explanations gave me a new perspective about the traps that wait for us, retail traders… It looks like we like to build fires under ourselves, haha.
I will read the articles from your cool stuff page. I’ve seen them but I wanted to finish reading and understanding your books and articles before starting to read them.
Do you think there is a possibility to use the community outlook from myfxbook http://www.myfxbook.com/community/outlook in a similar way to Oanda Order Book? In myfxbook tool we can’t see the pending orders, only the positions, but they show position values.
Do you mind if sometimes I’ll email you with more question? I know you already said so, but maybe it was just a polite answer.
Have a good day!
Best regards,
My Response:
You’re right about EUR/USD.
It did rise to the supply zone but the drop hasn’t been as dramatic as I expected.
Looking at the order book, it’s interesting to see those buy stops accumulating around the low of the recent retracement. These could be a sign banks are taking profits, or they might trigger a price cascade if they get hit. It’s too early to tell for sure, but watch for a break above the high of the move into the supply zone.
If that happens, it suggests the banks haven’t placed many sell trades at the supply zone, and we might see the market move back up to the previous highs.
But for this to play out, we need a strong close above those highs.
If it’s just a quick spike leaving a wick, it could mean the banks are just trying to get more sell trades filled at a similar price, which still gives us some clues about where the market might be headed.
As for the Myfxbook tool, I’m not too familiar with it either.
It seems like it could provide some useful data, but I’ll need to dig into it more..
Speak soon!
Liam Webb – PriceActionNinja.com