Have you ever felt like your placing a trade in the market at percisely the wrong time? You spot a great trade developing and get in, only to see the price almost instantly reverse , stop you out , and then continue in the direction of your original trade . If you nodding your head agreeing with me than you have been the victim of what I call a short term stop run reversal. Market makers, banks, and institutions are not out to intentionally move the price in this fashion to specifically take out the stop losses of the average traders , they do so to profit from them . Retail forex traders do not create the moves in the forex market, we simply buy or sell to join the ride. Knowing this , if we can begin to see frequently chart patterns such as stop run reversals , then we can effectively learn to enter exactly when big money is coming in to move the market. Let examine this pattern more in depth and disect the process, order flows, and supply/demand surrounding these stop run reversal trade setups.
Stop hunting is something well known in this market, but the reasons behind “hunting stops” is not common knowledge. So what is the real reason at the core of these moves just past a major level of support/resistance followed by a complete flip in the direction of the price? Quite simply put, financial institutions and large banks have to trade and disperse huge sums of money and need to get the best price possible . If they are looking to to go short the GBP/USD for example, they will run the market up past the previous high by a few pips or more and in doing so trigger the stop losses they know are lurking just above the last swing high. This gives them the “supply” of orders to satisfy their “demand”. Additionally selling in the area of all the buy orders (stop losses) allows them to move large amounts of money and not move the market down as fast as it would without all the freshly created “supply”, thus giving them a better overall entry .
Another factor that supports the stop run reversal trade strategy is that of the breakout trader. Many traders buy a break of a previous high, and sell the break of previous lows. With this knowledge, not only does “smart money” sell into the orders from those stopped out in the example above, but they additionally have all the people getting long on the breakout (supply) which only gives them more orders to sell into, to meet their demand. On top of all the previously mentioned as the institution or bank puches the price down after a stop run reversal setup they can count on the fact that that all those that bought the stop run reversal fakeout higher will need to start closing their positions. Its actually a beautiful trade setup for those trading large amounts of cash, they move the forex market up into an area of huge supply (stop location, as well as people buying a breakout) and by doing so meet their demand. Then after the fake breakout higher is seen, the breakout traders are forced to close their position (sell) and therefore fuel the large banks short trade . Additionally by the time this is seen by most forex trader the demand is so high the market has no other choice but to continue down! This was an example of a short setup on a stop run reversal setup but it will function the same for a long setep.
In conclusion the lets break this forex trading strategy down into 3 main points. First identify previous major intraday swing in the market. Second wait for that level to be broken by atleast a few pips, and then quickly rejected the opposite direction. Third the price must form a reversal candle formation with the candle that broke the support/resistance. This forex trade strategy is similar in many ways to trading an area of support or resistance, but much more powerful ! Here is the link to view our no cost forex education video on the stop run reversal setup setup. Without a doubt only “smart money” can push the market up and then quickly reject it which should tell you something , this is a “smart money” market move! With this knowledge, getting on the move their creating results in some powerful forex trade setups. Allow the forex market show it’s hand first, quit trying to be the first in, and just ride the wave ! If you would like to view us trade this great forex trading strategy live, in addition to our other forex setups, then I welcome you to try our 10 day trial to the live forex day trading room.