Have you ever felt like your entering the market at percisely the perfectly wrong time? You find a perfect perfect trade setting up and enter , only to see the price almost instantly reverse , stop you out , and then run in the direction of your original trade . If you nodding your head agreeing with me than you have been caught by the trap, of what I call a forex stop run reversal . Institutions, market makers, and banks are not out to intentionally move the price in this way to hurt retail traders , they do so to profit from them . Retail forex traders do not have the ability to create the moves in the forex market, we simply ride them . Knowing this , if we can recognize frequently chart patterns such as stop run reversals , then we can essentially learn to enter exactly when big money starts to move the market. Let examine this forex chart pattern more in depth and explain the process, order flows, and supply/demand that is involved with these stop run reversal trade setups.
Hunting stop losses is something well known in the forex market, but the reasons behind “hunting stops” is not as well know . Then what reason is at the core of these moves just past a major level of support/resistance and then a complete rejection ? very simply put, large banks and financial institutions have to trade and disperse very large sums of cash and [SPIN]want the best price possible . If they want to go short the GBP/USD for example, they will push the price up past the last major intra-day swing high by a few pips or more and trigger the stop losses they know are sitting just above the previous high . This gives them the “supply” of orders to meet their “demand”. Additionally selling in the area of all the buy orders (stop losses) enables them to move large amounts of money and not move the market down as fast as it would without all this “supply”, thus giving them a better overall entry .
Another factor supporting the stop run reversal trade setup is the order flow of breakout trader. Many forex traders buy a break of a previous high, and sell a break of previous lows. Knowing this , not only does “big money” sell into the orders from those stopped out in the example above, but they additionally have all the retail traders getting long on the breakout (supply) which only gives them additional orders to sell into, to fill the demand. On top of all the previously mentioned as the larger bank or institution puches the price down after a stop run reversal strategy occurs, they can count on the fact that that all those that went long on the false breakout higher will have to start closing their position . Its a beautiful trade setup for those moving huge sums of money , they move the price up into an area of huge supply (stop location, in addition people buying a breakout) and thus meet their demand. After the fake breakout higher is seen, the breakout traders are forced to cover their position (sell) and thus fuel the large banks short trade . Additionally by the time this is recognized by most retail traders the demand becomes so high the price has no other option but to rapidly plunge down! This was an example of a sell entry on a stop run reversal setup but it works the same for a long setep.
To review the lets break this trade down into 3 main points. First identify previous major intraday swing in the market. Second wait for that level to break by a few pips at least , and then quickly retrace back . Third the market the must close as a reversal candle formation with the candle that broke the support/resistance. This forex trade strategy is similar in many ways to trading a level of support or resistance, but much more powerful ! Here is the link to watch our no cost forex training video on the stop run reversal setup setup. Without a doubt only “smart money” can move the price up and then just as fast reject it which should tell you something , this is a “smart money” market move! Knowing this , getting on the move their creating results in some hugely profitable forex trade setups. Allow the forex market show you what its doing first, quit trying to be the first in, and just get on the wave once it’s started! If you would like to view us trade this great forex trading strategy live, in addition to our other forex setups, come check out our 10 day trial to the live forex training room.
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