Dear Mentor,
I’ve recently purchased your e-book ‘Zero Sum Fun’ and it got me thinking a lot.
Up till a couple of weeks before I purchased your book I was losing a lot, I was a 90% club member.
After this I studied price action and particularly following the big money.
I was told that you can see the footprints of the big money in the market and just sit on your hands till you see those appear and enter.
Mainly it comes down to having a ‘something’ line which can be a H4 50% open or close, or a colorchange or whatever I put weight on… (I read an article about TA where you state that TA only exist in your mind, what weight you put upon it or something like this)
Now with my line in the sand, I wait for price to close over my line with momentum. Once this happens, usually it will return to my line to zero out any profitable traders before continuing the move.
Though this seems to work, when I came across your website and later purchased your book, I doubt everything a bit…
I was tremendously intrigued by your article regarding stoploss hunting and watched it for a bit… I believe it was last Friday, I noticed that GBPJPY (I know you stated this is not traded much on Oanda but its my favorite instrument) had a lot of sell stops around a round level which was at that time like 70 pips above it… but below current price I didn’t see any clustered stops..
So I took a trade on demo and it almost straight went to those clustered stops above… I was amazed… could it be that we could trade from stop level to stop level?
I mean, is that something advisable?
Today I took a short of GBPJPY too.
For the 1st time in my life I start to understand (im not yet there, believe me I still ‘think to much’ instead of seeing…) that once we have a cluster of stops and once those are hit, the people having those sells need to BUY them back if they decide to exit in loss which will result in a further UP move….
This is what happened and after this I saw a nice pinbar… I figured, perhaps not correct (?) that since it took out those clustered sell stops and it presented a good pinbar, the smart money was setting this trap up so they could fill there sell orders once the amateurs got rid of their sell by opening a buy… this resulted in a nice move down for them and me…
However, since this is all new to me, I only took 10 pips on this one but nonetheless… I like these setups and this thinking…
Could you verify whether I was right on this analysis? I attached the orderbook before it hit the 155 where you can see the clustered sell stops and afterwards, as well as a marked up GBPJPY chart..
Also, you mentioned that there are also other order book strategies? Could you mention those so I can Google them or put them in a article?
For the rest, I must say that I really like your articles and the book you wrote. I’m very much impressed by them… It dares me to turn from thinking alone as to thinking what others are doing and how I can benefit from it…
Thank you very much for your work, keep it up.
Best Regards,
My Response:
You’ve made a simple mistake, but don’t worry, it’s minor.
Your understanding seems pretty solid.
In the open orders graph you’ve marked, you’ve pinpointed the pending sell orders rather than the buy stop orders located in the top-right quadrant. Remember, when price is on trajectory and you’re anticipating a stop run, focus on the blue clouded bars in the top-right corner.
These represent the buy stops from retail traders holding open short positions.
As the market encounters these stops, a significant number of retail traders place buy market orders, expecting the onset of a strong upward move. The banks, observing the same, opt to sell into these buy stops and market orders.
Once these orders are overwhelmed, the market plunges, giving rise to the wick on the pin bar. The subsequent downward move on the following candles results from traders who placed buy market orders closing their trades at a loss – the only way they can close a long trade is to sell.
Your analysis is pretty accurate; you were just looking at the wrong segment of the graph.
I wouldn’t advise trading from stop level to stop level.
The reason being, stop runs are only one part of the market structure.
Many other factors, more crucial than stop runs, come into play. Stop runs generally occur during a reversal when a clear level, like a low or high, is used by retail traders for their stops.
It’s relatively uncommon to see the market reverse from a stop run without prior consolidation.
In the example you provided, the banks used buy stops to take profits from the buy trades they placed when the market was at its lowest. That’s why the market continued to ascend after the stops induced a minor downward move.
Honestly, I don’t think there are many order-book strategies available on Google.
I’ll be publishing an article soon outlining others, but the most effective one involves using the open orders graph to trade stop runs. It’s the most reliable as stop runs occur frequently and generally yield successful outcomes.
Glad you appreciate the site and the articles.
If you have any more questions, don’t hesitate to shoot me an email, and I’ll do my best to provide answers.
Cheers,
PAN.