Lessons › Why traders lose › Is big money hunting your stop?
World 11 · Why traders lose · lesson 5 · level 2
Is big money hunting your stop?
Stops are sell orders that pile up under obvious lows; wait for the candle to close before you trust a break.
In one line
Price dips under the low, takes every stop, then flies. Here is what is really happening.
Explained simply
Big buyers need a lot of sellers. Every stop under an obvious low is a sell order waiting. When price dips there, those stops fill the big orders, and price often snaps back. It is not personal; it is where the orders are. So wait for the candle to close. If it closes back above the low, a bounce was more likely. If it closes below, respect the break.
Mistakes to avoid
- Thinking someone is watching your personal stop.
- Acting on a break before the candle has closed.
- Arguing with a close below the low.
Check yourself
To the market, a stop loss is…
A sell order waiting at a price. A stop under a low turns into a sell order when price touches it.
Why does price often dip just under an obvious low?
Stops pile up there, and big orders need them. Big buyers need sellers, and the stops under an obvious low are a pile of sell orders.
After the breaking candle closed back above the low, how often did price rise a full candle first?
54%. 54% rose a full candle first; 40% made a new low first (14,920 cases).
After a close below the low, how often did price rise a full candle first?
20%. Only 20%; 74% made a new low first (14,055 cases).
The candle closes below the low and keeps falling. What does your stop do?
It gets you out, which is its job. A real break is exactly the day the stop is for.
Goal of this lesson: Read the close of the breaking candle before you act.