I've been trading CL and GC recently, and I can't believe how often they take out my stops to the tick. They take out my stop and that will be within 1 or 2 ticks of the top/bottom and they they go the other way without me.
For example, I bought CL earlier this morning and put in a stop at 74.03. Look at the chart and you'll see at 10:41 AM ET, they took it down to exactly 74.03 and now it's going up without me.
I'm only trading 1 or 2 contracts at a time. Since when do they care about small fry like me?
Also, if you notice it was exactly yesterday's low price of the day. These monuments as I call them (daily OHLC, yesterday OHLC, weekly OHLC) are good to have on your chart to keep track of since they are price magnets a lot of the time (but not all of the time).
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Average retail traders are like mackerel. They migrate predictably, alone they don't offer much sustenance but if a predator finds a school it's chow time.
I can think of 2 ways 'sophisticated' traders can take advantage of stop clustering on a low time frame;
#1 is market makers widening their spreads enough that the cascading effect of the market orders allows them to improve their inventory.
#2 is a predatory trader attempting momentum ignition by aggressively trading enough size forcing market makers to widen and causing the same cascading effect into pre placed bids/offers by the predator.
An alternative to drastically wider stops is to wait for one of these stop runs before entering and/or hedge.
That is no surprise. Just place horizontal lines at 00, 20, 40, 60, and 80 levels on CL and watch how many times the same levels within 2-3 ticks would act as s/r and your stops will be taken out. The good news is that you can use these levels for targets, they will fill majority of the times.
Gold on the other hand is a different animal, the moves are much dependent on who buys or sells a big chunk of gold somewhere in the world, not an easy one to trade by retail traders.
p.s. 52 percent of gold gets used for jewelry, 18 percent constitute official holdings (as in central banks of nations), 16 percent take the form of investments, 12 percent find industrial uses, leaving 2 percent unaccounted for. So, you can guess a little daily imbalances creates big ripples. http://www.numbersleuth.org/worlds-gold/
Last edited by aligator; December 11th, 2014 at 04:12 PM.
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Someone pointed this out to me a few years ago, it is such a strange phenomenon in CL I have never been able to explain.
If you want to lean on a level, you can wait for the stops to be swept out (price to reach 2 or 3 ticks through the level), then look for the other side to take control of the market (I use order flow to see this). The cool thing is you can often see orders stacking ahead of the sweep. So if you have some technical trade setup near the 80 level for example, watch order flow for confirmation the level is in play, if so, then your trade has a higher chance of being successful.
In CL, my rule of thumb is I always want order flow (block size on the reconstructed tape) going with my trade not against it. Also, I prefer to see orders being pulled (and not being stacked) in front of where I want price to go (between current price and my profit target). Orders stacking at or near my profit target is a good sign for me, it's telling me the market agree's with my thesis (the market is looking at that level). Conversely, if you see orders being stacked on your stop, then your stop order is very likely going to be taken by the market. When this happens to me (orders stacking on my stop), I either move the stop order out of the way or close the trade.
Be Patient and Trade Smart
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