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| The fox and the market https://www.stevehopwoodforex.com/phpBB3/viewtopic.php?t=2010 |
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| Author: | Forexfux [ Sun Apr 28, 2013 2:38 pm ] |
| Post subject: | Re: The fox and the market |
I missed something about stop hunts. Stop hunting has two different meanings. One is already explained, the other is the action of retail brokers to provide quotes that deviate from interbank prices, in order to take out their clients' big positions. They do it when they widen the spread suddenly. |
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| Author: | Forexfux [ Sun Apr 28, 2013 2:49 pm ] |
| Post subject: | Re: The fox and the market |
Now I'll probably confuse you. Not every stop triggering is a stop hunt. It would be too easy to wait for pin bars and enter in the direction the fox intent. Our success rate would be 100%. Here is something another OF trader named grkfx posted: 1. Stop hunting can occur at any point in the day. I have seen stop hunts occur during London U.S. session, as well as during late NY sessions, as well as Sydney session, Tokyo session. The London session and London/NY overlap is the most liquid obviously so if they are hunting stops it requires a larger order, but usually hits a larger size of stops, but also potential for hitting larger standing limit orders as well. Just because stops are tripped doesn't mean that someone hunted them. They could of been tripped for a large number of reasons unrelated to people hunting them. I have seen stop runs/cascades of 5-10 pips and 30 pips or more during London/NY session, but also seen same stop getting tripped of 5-10 pips and 30 pips or more during illiquid sessions too. It just depends what is going on in the market. It depends how the market is positioned, what their emotions are, what their sensitivities are, what their expectations are, what the order flow book looks like, what the liquidity situation looks like, what mood the hunters are in, what the other market participants are doing, etc. There are stop hunts that occur both during liquid and illiquid sessions that are both high probability. I could also show you examples of both that are low probability for any number of reasons. It just depends what is going on in the market. Trading isn't some rigid game with strict rules, its more of a fluid thing. Human beings have emotions that can change sometimes quickly, sometimes slowly, sometimes in an average time. It just depends what is going on. Heck I have even seen stops getting tripped when a bank executed a much larger order than they wanted to by mistake. By the time they figured out their mistake, the damage had already been done to the order flow book/liquidity structure. |
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| Author: | Forexfux [ Sun Apr 28, 2013 3:08 pm ] |
| Post subject: | Re: The fox and the market |
I know a S&D trader who is an unbelievable good trader. He is maybe the best trader I have ever seen. He wrote: "Trading is more of an art than science. In science we can study and learn the theory and procedure to replicate same thing over an over. Once we learn water boils at 100 degrees Celsius or 212 degrees Fahrenheit all we need to do is to obtain constant heat to reach specific temperature. We can replicate it as many times as we want or able. On the other hand we can study all the trading literature and learn all there is to learn will not make us profitable trader. Learning to trade is very easy, but practicing it successfully is not. Why is that? Because nobody can give you a set of rules that will apply all circumstances in trading. Trading learned through experience, a disciplined experience." Nothing is set in stone in trading. Experience will tell us if we should take a trade or if we better stay at the side line. There is no gut feeling there is only expirience. Expirience will tell us if there is a stop hunt or not or a shake out... The fox is smart and the screen is our spy glass to observe and study the fox. |
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| Author: | Forexfux [ Sun Apr 28, 2013 8:20 pm ] |
| Post subject: | Re: The fox and the market |
I think I should add something regarding limit orders. "So again, bids are limit orders to buy at a determined price. Bids mentioned in the flow info providers will be levels where good buying interest is noted. Offers are limit orders to sell at a determined price. The mentioned Offers will be where selling interest is noted. Large traders cannot simply accumulate or distribute a large position whenever they wish. They have to look for liquidity and stops are helping them in an indirect way. That is why stop hunts tend to be quickly faded: The large bids or offers got filled and with the stops triggered, there are no buyers left in a buy stop-hunt scenario and no sellers in a sell stop-hunt scenario. Those bids and offers tend to stabilize the market. If there were little of them availaible as the stops get triggered, it would result into an event called a stop cascade - there is insufficient liquidity for the stop loss orders and price gets pushed into the next area of large stops until bids/offers in good size appear." |
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| Author: | Forexfux [ Sun Apr 28, 2013 8:39 pm ] |
| Post subject: | Re: The fox and the market |
The thread is rather bad structured because I have no real concept. However I hope it's possible to follow? A little feedback would be nice. |
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| Author: | casapips [ Sun Apr 28, 2013 9:28 pm ] |
| Post subject: | Re: The fox and the market |
It is a Yes or a Oui for me! Super clear and very interesting this Order flow mindset.. Looking forward to read more.. Take care casapips |
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| Author: | mjws00 [ Mon Apr 29, 2013 1:21 am ] |
| Post subject: | Re: The fox and the market |
So far so good. Don't sweat structure or the English. You are doing excellent work. Mike |
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| Author: | Forexfux [ Mon Apr 29, 2013 1:34 pm ] |
| Post subject: | Re: The fox and the market |
Okay nice to hear. So I can continue. CJ mostly doesn't set a SL via his broker. He has his stop in mind but he doesn't want that his broker gets this information. For understandable reasons he is hiding the stops but it is dangerous too. You can lose your internet connection or your broker go offline. You need at least 2 different internet connections (for example cable/dsl and smartphone connection) and 2 different brokers for hedging the risk if one broker is offline. When your acc is big and you lose connection to your broker for 1 hour and you have a trade open without Sl it can hurt. Remember what happened to mf global. From the moment they went insolvent the clients can't dispose of their securities. They can't close positions enter new orders or withdrawl their money. This situation lasted for months. Now imagine you would have an order open without SL. |
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| Author: | Forexfux [ Mon Apr 29, 2013 2:13 pm ] |
| Post subject: | Re: The fox and the market |
Liquidity gaps or liquidity spikes: I don't know if it was Chris Lori or Seve w (forum nick nobrainer) who introduced this topic to the community. What I know is that FXSniffer wrote a very nice article at the "Read The Market" forum about liquidity gaps. I'll attach 2 videos from Chris Lori and Steve W so you can choose if you want to start with the videos first or with the article. Steve W: http://www.youtube.com/watch?v=-8Qf0BwKbUs Chris Lori Vid: http://www.youtube.com/watch?v=HGRiS-vFkhI My main trading time frames are H4 & H1. I might use the minimum indicators for confluence sake, such as Trend Lines, Channels, Fib and sometimes MACD for divergence signals. The core of my trading technique is tracing the order flow and trading Price Action at Supply & Demand areas as well as Price Patterns. Based on this equation Volatility = High Volume + Low Liquidity. There is no easy way to answer this question as it requires a study of the market microstructure which explains how the exchange occurs in financial markets and the order flow process, but I’ll try my best to make it simple. We know that in a normal market there is a buyer for every seller and vice versa, this is considered a stable state of the market as it creates a balance between supply and demand and maintains a stable price value, and as the imbalance occurs in supply and demand the value of price increases or decreases. The balance state on chart is presented by a consolidation in price, and the imbalance is presented by a high volume/momentum candle (also known as a sign of Pro money / Institution’s buying or selling). If we zoom into the consolidation (LTF) we’ll find other states of balance and imbalance. In post #90 I tried to explain the orders execution of Pro money but not in an accurate way for the sake of simplicity but I fixed this in post #138. So to recap, to have your orders executed at current price you need someone on the opposite side with the same number of orders otherwise price will move too much from your entry until it finds an opposite stack of orders. Retail traders have a big advantage over Pro money since their orders gets executed at current price, a benefit that Pro money doesn't have due to their mass orders which gets executed at different prices as the price moves away from their initial entry. Hence they tend to accumulate/distribute their orders through positioning, re-entering on retracements or even creating them as well as fakeouts. By now you understand why the sign of pro money buying/selling is presented by a high momentum candles aka liquidity gaps, but if you didn’t then continue reading. A liquidity gap means low liquidity! How?! You know that for every seller there is buyer and vice versa, but you also know that online brokers doesn't guarantee a non-slippage or a no requote during the time of volatile news due to low liquidity, and you can clearly see it on charts during such news when a long spike or a high momentum candle is created in seconds. A broker wouldn’t take the risk if you’re buying because they can't find you a seller unless they are willing to take the risk by selling to you as a dealer. So how could we say it’s a low liquidity when price moves in a high volume?! Again, we know that high volume candles are signs of big money, institutions etc. entering the market or in control of the market pushing price in their direction...that is true. However, the liquidity in this case is being injected from one side only (the dominant side) hence the name liquidity gap and the equation “Volatility = High Volume + Low Liquidity”. Now bear with me...The "normal or balanced state" of the market is to have a seller for every buyer thus maintaining an efficient change in price value, so when the market moves up or down either in consolidation or in a ladder steps behavior then it’s a “normal balanced state”, but if it moves up or down with a high volatility and momentum then its "abnormal or imbalanced state" and it’s a sign of domination from one side. So what is the conclusion?! The dominant side (pro money) would want to collect their profits as soon as price reaches their targets which results in market returning to its previous state (rebalancing) on a wider scale and filling up the liquidity gaps. I’ve answered the definition part in your question; now let’s answer the other part related to price reaction. I hope you were paying attention to the Fiber and Cable as I suggested in post #134 and you can see the marked LQ gaps in the process of getting filled. Look at the attached Gold daily chart and see the price behavior when it broke through a decision area/major key level of significance, creating a high momentum candle as a sign of one side in control bulls or bears and how they wanted to push it higher or lower, of course price will return to fill the LQ gaps but later in the future, not at the present time of the incident specially not when it starts creating a new DP/Supply/Demand as pro money position their entries. On the other hand you can notice larger high momentum candles (LQ gaps) gets filled the same day or next day but this happens when price fails to break through a major DP or key level and this is when pro money are accumulating/distributing (bottom and top side of the chart). The market is in a constant state/phase shifting from normal to abnormal, balanced to imbalanced and back again, just the same as in ranging to trending and back again (refer to Wyckoff Market Theory), and every range contains the two phases if you zoom in, the same applies to the bottom consolidated area in chart. Supply & Demand trading style is in harmony with order flow and it works according to this stuff. IMO if we learn how the market works from the beginning it would save us a lot of time in our journey. Hope I made it clear and simple. Before I post again about the LQ gap I decided to give a brief about the mechanism of order flow. When we look at the market watch window in our trading platform we'll see instrument's symbols and next to it two different prices, one is bid and another is ask or offer. These prices are offered to us through an online broker who is not just a broker but also a dealer. Here is an explanation of the difference between a dealer and a broker from “Trading & Exchanges – By Larry Harris” “Dealers and brokers help people trade. Dealers trade with their clients when their clients want to trade. The prices at which a dealer will buy and sell are the dealer's bid and ask prices. After they trade with their clients, dealers then try to trade out at a profit by selling what they have bought or by buying back what they have sold. In effect, clients pay dealers to take their trading problems. The dealers then try to solve them at a profit. Dealers profit by buying low and selling high. Successful dealers must be excellent traders. Brokers are agents who arrange trades for their clients. They help their clients find traders who are willing to trade with them. They profit by charging commissions.” Dealers are market makers and also known as market specialists, so they play a big role as a market participant beside other pro money, understand how they play and you'll play with them. Now we understand that online brokers act as brokers and dealers. Back to the market watch window, the ask/offer shows the lowest offer price which the market is willing to sell at and for you to buy, the bid shows the highest bid price which the market is willing to buy at and for you to sell. I’ve already explained in posts #82 & 83 that there are two types of orders “market orders” and “limit orders”, in the below image I’m showing an example of an order book aka; DOM, Price Ladder, Level II. Bear in mind this is only for explanation purposes, in the currency and metals market there is no depth of market, it only applies to centralized markets such as futures, equities and commodities. Of course banks and dealers have their own order books but it only shows their clients orders. Back to the image, the offers column for sell limit orders, bids for buy limit orders and in middle is the price. I’ve taken eur/usd prices as an example, the orders are standard lots/contracts (i.e. 200K = 2 lots and 1M = 10 lots), the two prices highlighted in yellow presents the Bid/Ask prices which we see on our market watch (spread in this example is unrealistic and only to make it easier). Anyone entering the market with market orders will be buying at 1.3010 and selling at 1.300. Now let’s say you place buy market orders of 500K (5 lots) what will happen?! Your orders will be executed at the lowest offer consuming the 200K at 1.3010 and a 300K out of 500K at 1.3020 and this price will be the new lowest offer with 200K limit orders, so as offers were consumed price moved up to 1.3020 Another scenario; you are placing a sell market orders of 1 million (10 lots) what is the outcome?! Your orders will be executed at the highest bid consuming the 400K at 1.3000, the 200K at 1.2980, the 300K at 1.2970 and a 100K out of 500K at 1.2950 and this will be the new highest bid with 400K limit orders, so as bids were consumed price moved down to 1.2950 This is how price moves up or down by consuming orders, and bigger orders generate buying/selling pressure (momentum) pushing price in its direction consuming smaller orders until it stops (slow down /stalls) at a new price where there are opposite bigger orders are placed. One last thing, the stop loss pending orders considered as limit orders and when it’s executed it adds pressure in the opposite direction. Hope it makes sense. |
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| Author: | Forexfux [ Mon Apr 29, 2013 2:39 pm ] |
| Post subject: | Re: The fox and the market |
The fox is using momentum like the LQ gap momentum to scary retail traders when price is reaching a zone of interest. They want the retail trader thinking that price is to strong to turn arround and it's better to enter in the direction of the momentum. They trap retail traders in the wrong direction. But in trading it's like in physic. Remember the law of physic: the stronger you hit a ball against a wall the stronger it will bounce back. But if the wall is not strong enough then the ball will go through. A strong wall is a zone where liquidity is located. So don't get frighten when price is arriving with momentum. |
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