I see a potential Liquidity Trap above this high on EU.
There's going to be a lot of stops above this high as It's a fair swing point and as we know retail traders love having their stops above/below swing points.
If we can fail to close above this level I will short to the FTA highlighted by the horizontal line.
"Why are you certain there will be a reaction here?" - you might ask.
Well if short traders have their stops above this high, as price squeezes and stops them out they will have to buy their way out of the order which provides a mass of buy orders or liquidity to the institutional players who need that liquidity to get their full positions in the market. They will then enter short to squeeze out any long traders who have traded the breakout or predicted the change in trend.
And that's why we're in and out of these trades and will only trade to the FTA because you often find once price hits the FTA it can go either way.
It's not their stops that are above these areas it's their entry orders. Then when price goes against them they close their positions through fear in part because many of them either over leverage or they trade without a stop loss and the banks know this so they get short and this melting pot of activity causes a mass run on the market to the downside. It's called "mass psychology". ✌🏻
Kieran_Duff
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@StewySongs, Hi mate, yeah you're correct but you're only accounting for half of the traders in the liquidity pool. You have the breakout traders like you say, but what about the current shorts whose stops are above the most obvious place, the last swing high. But a stop is also an entry order so it works in the same way as what you're explaining.
But yeah, this trade was invalidated anyway as it closed into the pool of liquidity with no knee-jerk reaction (that fits my rules/criteria) so was unable to enter!