Understanding Stophunts In The Currency Markert
THE STOP HUNT
The stop hunt involves a deliberate movement outside of the range to what will become the high or low of the day. The move usually occurs in three pushes which can be as simple as three candles though you will sometimes see a small pause in the form of a pullback in the middle of this. The stop hunt has two main objectives:
- Take out existing stops
- Encourage traders to commit to positions in a direction that is opposite to where the real trend is going to be. This represents the high/low of the day (HOD/LOD). Once the HOD/LOD has been hit:
- The spread is opened up by a few pips. This allows traders orders to be triggered outside their normal boundaries and they will be holding negative positions from the outset
- It is common to see price undergo a further period of accumulation lasting 30 to 90 minutes which encourages traders to take further positions. When there are enough positions, the price is moved in the direction of the true trend and their stops will be triggered.
- There is often a second move to the HOD/LOD though most of the time it will fail to take it out (so as to not give those who got in a profitable position to escape from). This forms the typical W or M pattern.
- This is the preferred point of entry for most of these trades, particularly the second leg of the M or W. It is relatively slow moving and so there should be no reason to rush or impulsively take a trade.