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Stop Hunts - Are they really what the name entails? Or is there more to them?
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Stop Hunts - Are they really what the name entails? Or is there more to them?

  #71 (permalink)
London UK
Trading Experience: Intermediate
Platform: InvestorRT/TT/DTN.IQ
Broker/Data: LCT/Iq Feed
Favorite Futures: SandP futures
Posts: 342 since Jul 2013
Thanks: 45 given, 145 received

JMoniker View Post
Today during Globex I saw it setting up for an inverse H&S on the 15 minute chart. I'm still new and thought okay, I know this one! So I go long near the head. It starts to make the shoulder and I'm excited. Here we go! Blast off! I'm going to have SUCH a nice steak this weekend y'all don't even know! Then sometime between 10:15-10:20, it literally plummets within a microsecond (it's that doji you can see before the rally). That doji's bottom literally took less than a second before instantly snapping back up. Four points in the blink of an eye. It came down so quick I closed my position. Then it proceeded to go up thirty points for the rest of the day. I was so stunned I couldn't take another long entry. Through teary eyes I watched it rally higher and higher as "Hurt" by Johnny Cash played on my speakers.

I know naturally I'd roll my eyes and say "there's that crap they do again". But I was wondering if some of the more experienced traders can offer some insight on it. Did they do all that just to "test" 2562? That's a test? A test for whom? Themselves? By "they and them" I'm of course referring to whatever imaginary enemy I envision to be the culprit behind these stop runs. I know the traditional advice is to have had my stop below 2560 but I just don't understand why they have to do that. I mean I guess I understand "why" predatory intent really all there is to it? Same with some of the topping wicks later in the day. They were again millisecond whips I assume to take out any shorts before going down ANY way. Okay sure those topping wicks today align with some other insignificant wick from the prior day that was neither support nor resistance, which I'm sure also took a millisecond to make.

I can't help but wonder though...maybe there's something in footprint charts or something that would explain these moves. Like "oh that was just where a lot of sellers were". Something more technical than "it's a stop hunt". Or maybe those blink of an eye flashes are caused BECAUSE stop orders are being hit?

P.S - Usually when I ask a question here, someone always says "you don't know what you're doing, stop trading". Just help me. I just wanna learn that's all. You're better than me. I'm as sure of it as you are.

I've read a lot of comments on here about shady practise etc but in terms of market structure, how and where people are positioned then liquidity sweeps (DO NOT CALL THEM STOP HUNTS) make perfect sense and are a perfectly fair way of doing business.
A lot of the explanations on here are stuck in a lot of trader style language where it is hard to decipher the actual meaning so I'll make it simple. I only understood trading once I could put things in easily understandable terms-that's my limitation and I'm not claiming to be the best trader around.

So, as the original poster asked, what are stop hunts, do they exist, do they happen?
Yes they do, but calling them stop hunts is not the right way to look at it. In my previous posts, I explain simply why they happen because it is to do with the largest, and strongest players in the market. They have to open and close very large order sizes which means they have to do things differently to us smaller players who are opening up small positions.

Now the reason that liquidity sweeps (price breaching a swing high or low and then reversing) seem 'unfair' to the retail trader is that they are taking part in an auction where they are ignorant (willfully or just didn't know) that other larger players exist.

Knowing that larger players exist is lesson one.
Lesson two is then anticipating price areas where they get involved, why, and how they show themselves.

Lesson one. The existence of big players
Please note that I understand you recognise the big players are there. This example is just to illustrate to those who are still fighting it.

Imagine a scenario that we can all relate to. Yes I know it's not the same in terms of the ES and order sizes/absorption etc but too much detail is too much detail!

You're at an antiques auction and want to buy a nice table. You have people all around you who are also in the market for the same table and they all have a similar budget to you. To make it like a futures market, you are also able to somehow bet that the price will also go lower as well as bid on the price going up.

Now imagine that all of you small time traders have absolutely ZERO knowledge of fellow antique table traders, with vast financial backing, sitting behind you protected by a screen who are also making bids/offers on the same antique table. You don't see the size of these bids/offers as you don't even know that they're there at all, or that the big traders are disguising them by mixing in with your own smaller orders. But it is these large orders which are actually causing price to move up or down and change direction.

Either way, when the auction starts and bidding begins on the antique table, there are going to be moves in price that will leave you scratching your head in puzzlement if you are simply going off the noise and info that your fellow small traders around you are making.

You've seen 25 small traders with their hands up to bid up the price but it has only increased 12 times and not 25. To be fair you also saw 5 small traders put their hands up to bet on the price going down. So the price of the table should have gone up 20 times as far as you can see, but it has actually only gone up 12 times.

What? How is this possible? You look around but still cannot see the hidden large buyers and sellers behind you. You don't know that they are there. You don't know how they affect prices, and therefore this is the most important point which is hard for people (like you and me) to grasp, especially as we have been brought up on sports games, card games etc. And what we don't realise is this:

We are taking part in a game where, unlike a game of baseball, or the antique table auction, we are allowed to take part where the entire set of rules and actions are not being told to us. We are participating in a game where we can see the game being played, and it looks familiar, but we are actually taking part with incomplete information on the rules of the game and how to win.

This is why LIQUIDITY SWEEPS seem unfair or to be bad sportsmanship. They are not. They are the rules of the actual game being played, and not the one that you/we think is being played.

You asked a question that all trading boils down to. Because liquidity sweeps are the basic unwritten rule of the game, and hardly anyone knows about it or understands it.

So the next lesson is knowing when and where large traders get involved. Simple. Get a 1 hour, two hour and 4 hour chart up. Draw lines across major swing highs and lows, especially if they are made during US trading hours. Watch closely what happens to price when these areas are reached.
Why does it work? Think of the volume required to make price change direction over these longer time frames. That's the big players at work.

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