I think stop busting is a misconceived notion. Sort of like a superstitious bogeyman that children believe in. Or the inane cry of PPT in order to compensate for one's impotent trading acumen. That's not to say someone like a specialist who has an unfair advantage in creating a market might not go on a stop hunting expedition, but rather in a true auction market (which the NYSE is not), the purpose of the market, and ergo the locals, is the faciliation of trade. And in order to facilitate trade, the direction of price must go where the most activity will take place. By pushing prices lower, the market will either experience increased buying as dip buyers step in, or increased selling as paper steps off the bid and onto the offer. Vice versa on the approach up. And if your stops in the way, so be it. Their job in encouraging trade and making a market has been accomplished. The "random" fluctuation of the market are locals guiding the market in one direction and another for a few points in order to find more market participants, be they stops or paper, in that never ending process called price discovery.
re. stop busting; It's not hard to "know" where the stops are going to be. If a stock is rising from $4 to $5 everyone is going to know where the stops are going to be. So I, as a "nasdaq-local" will not offer the market at $4.95, no, I will buy it on the way to $5 and sell it right after it breaks the $5. This is standard scalping technique. nothing mystical about it. and it happens all the time. so stop busting is alive and kicking!
Prices are generally attracted to stops like a moth to a flame, but not because anyone is conciously "stop busting." It is simple price discovery that makes it seem that way. nitro
Only one of many... ...and we certainly wouldn't want you to. Half a globe away is too close as it is.
Sigh... First post on ET, and already destructive? This might be for you, brother Adolf: http://www.heathenworld.com/swastika/ Compliments, ~Scientist
richardSmack, did you join ET to say this??? As this is your first post on ET.... I would expect a member's first post to be more beneficial or inquisitive OR are you a clone of one of our less respected members???
Dear Brother PuffyGums, These are two excellent articles about dynamic hedging! The concept of "exploit the dynamic hedgers" is both the most underestimated and the most important secret to success in the markets, particularly trading two-sided markets such as futures. Saying that "a bull can rise only after all the longs have been burned", is not only the true case, as explained by the fact that a minority of people want to reap the majority of rewards - But It is also supported by the fact that the exchanges make their money on volume, rather than price, thus always try to push the market into the direction of the most volume. Logically, if there isn't much volume left on i.e. the bullish side, that is, all the bulls are gone, then there is no reason (and no backup) for the market to travel into that direction any further. Next thing, price discovery alleviates the pressure for volume and drives it into the opposite direction - The bullish, that is! This is such a well-kept secret by successful traders, particularly scalpers, but once this is understood, large doors open themselves to the trader who previously sought the direction of the most volume (bought on fat bid, sold on fat ask). Ironically, this is how most traders think and trade. Once this enigma has been solved, the trader (and particularly the scalper - the shorter-term you trade, the more important!) moves onto the 2nd Level of trading. Now he realized - and this is a HUGE surprise to anyone who just discovered it! - that trading, by means of volume, is about being contrarian. To fade the crowd, rather than follow it! I sincerely believe that this is the only way to make money in scalping or very-short-term trading. And I can prove it! But rather than elaborate - I will tell you how to prove it to yourself! Look at this: When I scalp the ES, for example, I will, besides watching the charts (15S, 1M, 3M, 144T etc), constantly look at T&S and depth. Once T&S seems to "tick over", you can see a lot of contrarian volume on depth. Next thing, I wait for either side to almost double. Generally, while I look little at inside ask&bid (which everyone does!), I look more at the levels below, and particularly at the cumulative! If the cumulatives differ by more than 60%, we have a nice contrarian entry preoccupation. To make it a little clearer: If i.e. the bid/ask is 2400/4200, I will assume that the bears are getting exhausted. The bears now have little market to sell into, and thus create buying energy! Now lots of wise traders, particularly the exchange-based professionals see the opportunity to tick over the market into the direction of volume. Since there now is plenty of volume on the ask (as shown by by the #of bears), this is the way to go. Next, bulls come in for a low-risk entry and eat their way through the ask. Since the ask is big - as an effect of lots of fearful sellers - as well as stop orders and crowd bias etc etc, there is lots of "mass" for the new bull to feed on. All this, coupled with the "newbies", who are now coming in as well to try to catch the running train, creates bullish momentum, which accelerates the process even further! You could, to better conceptualize this, imagine bulls&bears as bacteria who feed off each other, like certain intestinal bacteria (lactobacillus, yeast) and see how, once one party has eaten most of the other, it can no longer grow and dies off, since there is nothing to eat! Next thing, the party weakens from hunger, feeds off itself / its own energy, dies and the other party has plenty to eat and chance to grow again - exponentially! This continues until the new rising party is too large again to find enough food and has to start feeding off itself, giving the opposite party a new rising. The whole cycle repeats. This happens in the market all day, and particularly in the very large and two-sided futures markets, the bacteria analogy works very well. It also applies to horse betting, where people will stop betting on a good horse if the bet/reward ratio is too low, as well as almost anything risk/reward related in this world. A great business and trading creed of mine says: "If it's obvious, I don't do it. There's no money to be made in the obvious." I'm not taking credit here - I didn't actually come up with this - It has been said before - But I live by this rule, it is representative of everything I have achieved in my life. It applies to any form of business or trading. Live by it, and the world will be your oyster. Never follow the crowd. Full stop. Nevertheless, the bottom line is that once you understand these cycles, you soon get to predict them. Entering a market at times where the market i.e. on the ES is 2,000+ contrarian are certainly the lowest-risk entries if you're scalping, particularly when you're backing up your entry with short-term chart situations, such as rockets (momentum breakups/breakdowns) as well as breakouts in both directions (as implied by consolidations / flags). For example, when scalping the ES, I will not enter a 15S-or 1M-BullFlag unless there is a minimum of 1,000-1,500 ask size over bid size, better 2,000 or more. If there isn't enough sellers, I simply can't see worthwhile momentum happening and move onto the next trade. It's as simple as that. Of course you need to experiment a little. Bearflags on this timeframe, for example, tend to behave a little different ask/bid wise, since greed/fear aren't exactly opposing emotions - Fear will act a lot stronger and faster than greed, so I do recommend you just watch these cycles on the simulator for a while. You will soon get to see what I mean. Those who haven't seen this before, I almost guarantee you to be amazed. I have seen great internal trading buddies of mine had their lives changed by this discovery. Once you get it - the proof is in the pudding! To summarize all this: The less you risk, the lower your reward. Risk little enough, and your reward will be loss. The market hurts the highest number of dynamic hedgers. All the Best, Brother PuffyGums, and thank you for this enlightening post and links... My Compliments, ~The Scientist
this thread is interesting. it's another example of how an interesting thread goes sideways and then die in a down trend. We'll try to prevent this for a while until you kids finally kill the interesting content or you are banned.
This just comes to show you that humanâs destructive nature will eventually come to destroy any successful market.