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Richard Scionti
TIME TO LEARN YOU SOME KNOWLEDGE Chances are, if you've only dabbled in stop losses, you've had your stops just barely hit just for the stock to immediately blow up. Or, if you use stops often, you probably see this somewhat frequently and don't know what you're doing wrong. Here's the answer: Nothing. The stock market is a rigged game, and the sooner you realize that, the sooner you can avoid the traps. I just saw this happen with $SIGA , so I'm going to be using that as an example. We're only focusing on the area in the yellow circle. So, you see this stock blowing up. It cools down a little. You might even think to yourself "Wow, it's under the 21 SMA and the Stoch RSI is down! Now's a great time to buy!" So you buy at either the center red candle with the line under it, or the green one immediately after. Buy you're no fool! You don't want unnecessary risk, so you set a stop sell order. This makes it so that if the stock drops below your risk tolerance, you'll automatically sell. Now, you know that a new low is usually bad news that can lead to a massive drop, and you know that tight stops mean tight risks, so you place your stop at the first blue line, just under the recent bottom. BUT OH CRAP, a minute or two goes by and out of nowhere, a massive red drops down, stops you out, and then the stock immediately shoots back up. "Wtf," you think to yourself. "That was stupid, I want back in." Luckily for you, there's another red candle that drops right to the bottom of the last green one. "I'll buy here," you think, "and I'll place my stop right under the last low. Surely it can't go lower!" This is the second blue line. ARE YOU SERIOIUS? A minute or two passes, and the same thing happens. The stock just taps your stop and then goes back up. "This is ridiculous! I'm out of this stock!" But of course, you keep an eye on it, and what do you know, it shoots up and never touches that spot again. So what happens here is that brokers, the guys that retail makes their trades through, like to trade against retail. And they're able see where all of the retail orders are BECAUSE they're the one managing them. Imagine you're a broker. You see this stock is running, and you want in. You're managing millions of dollars, so every marginal difference counts, so... What if you could get a better entry than what's currently available? You look to your charts. You open the data. "Huh," you think to yourself, "There are a TON of stop sell orders right under this candle. Well, someone has to fill those orders, right?" EVERY SELL NEEDS A BUYER. EVERY BUY NEEDS A SELLER. THIS IS KEY. The broker then sets several limit buys RIGHT where the stops are. After that's in place, they then offload all their shares until the price drops JUST to the price they want. Instantly, all the retail shares are sold and immediately bought by the broker. This buying pressure then pops the price right back up. In this case specifically, it looks like it happened twice in a row. This ability to see where orders are placed is taking advantage of what's called "liquidity pools," and it's how a lot of big money makes profit. They run and pump these momentum plays, scalping better entries on the way up. #AmateurInvesting #technicalanalysis #TA #liquidity #liquiditypool #marketmanipulation #marketanalysis #marketawareness #resource #learing #stoploss #education Edit: Read my comment for the solution to this problem.
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