Stop hunting, and entering after it
Price takes yesterday's low by a few points, everybody's stop fills, and then it turns and goes the other way. That is not bad luck. It is the mechanism, and once you can see it coming it becomes an entry rather than an exit.
Lesson 6 of 12. The shortest section of the course, and the one with the highest number of rules per page.
What a stop hunt is
The name he uses interchangeably is stop fishing, and the description is unsentimental: it is what market makers do to other traders' stop orders in order to fill their own limit orders — entries or targets, for themselves or for their clients.
The mechanism is simple once stated. A market maker identifies an area holding a large number of stop orders, and moves the market toward it algorithmically. The stops fill. That filling is what provides the liquidity the maker needed, and the move it was for begins afterwards.
The zone he gives is specific: 20 to 25 pips beyond the targeted area. Not a vague overshoot — a distance.
Read that way, the spike is not the move. It is what pays for the move. And that is the whole reason this lesson exists: if you can tell which spike is which, the thing that usually takes you out becomes the thing that gets you in.
Why a stop is worth hunting
This section connects two things he says in different places, because together they explain why any of this happens.
Lesson five made the point that your own orders are not what you think they are. Enter a long and you have placed three orders: the buy, and two sells — the target and the stop. Your stop is a sell order sitting in the market alongside everybody else's.
The same lesson established the other half: passive orders cannot reach each other. Someone resting a large limit order needs aggressive flow on the opposite side to fill against, and there is only so much of it available at any moment.
Put the two together and the incentive is obvious. A triggered stop becomes an aggressive order immediately — that is what a stop is. So a price holding thousands of stops is a price holding guaranteed aggressive flow, waiting to be released on demand. Reaching it does not just move price past a level. It manufactures exactly the counterparty a large resting order needs.
Which is why the target is never a random price, and why the next section is short: the places worth hunting are the places where everybody put the same order.
Where the stops are
He names four zones, and what they have in common is that all four are prices everyone can see. That is not a coincidence — it is the qualification. Stops cluster where the obvious level is, so the obvious level is where the liquidity is.
Note what the fourth one does to the list. The first three are levels any chart shows. The fourth — the delta cycle zones — needs the volume data from the earlier lessons to find at all. So the same reasoning that made those zones worth trading in lesson three also makes them worth hunting, and that cuts both ways.
- Yesterday's high and low.
- The highs and lows of the trading sessions through the day — Asian, European, American.
- P2 and P3 points, and especially those with an opposing delta and a negative volume slope.
- Market cycle levels — the delta cycle zones from lesson three.
Fishing with the structure
There are two types, and this is the good one. He calls it the best entry, and the reason is that the information is clear enough beforehand that you can anticipate the hunt rather than discover it.
What you are looking for is a movement that was never properly supported — a negative volume slope or an inconsistent delta, which lesson three identified as a correction zone. Because there is no volume and no delta behind it, it is a natural place to be re-entered, and those areas usually form around P3.
The timing is normally just before a significant news release, and aligned with the main trend.
Now the part that makes it work, and it is the whole condition: the fundamental data has to agree with the main trend. When you have found a fishable P3 from Level 2 data, check the release against the trend before anything else.
What then typically happens is worth memorising, because it looks wrong while it is occurring. The market first fishes the area by moving against the news, then returns to the zone, and only then starts the main movement. If you are watching the news rather than the level, the first leg will convince you that you were wrong.
The three situations where you take nothing
Short, and the second one is the one that catches people who are doing everything else right.
- The news contradicts the trend, the analysis is unclear, or the release came in outside expectations. Do not enter — it could be a trend break rather than a hunt.
- The daily momentum has already run well past the P2 zone and needs a correction. In that case the lower hourly P3 areas can act as traps: the market stops out every entry even though the fundamental news supports it. The data being right does not make the trade right.
- Several nearby areas exist. They will usually all be fished together, so work from the highest point rather than the nearest one.
When the first attempt does not work
Sometimes the hunt happens and the market does not move afterwards. His reading of that is precise: the first attempt did not attract enough liquidity, so the market maker will try again by another route.
Three continuations, and knowing them stops you concluding the read was wrong:
- A — an accumulation phase after the hunt, followed by continuation during the Asian session.
- B — a short retreat from the first fishing point, then a return and a repeat. He says this usually happens three times in total.
- C — the movement continues with an opposing delta and a negative volume slope, forming an H shape across the trading day, then fishes the other side and re-accumulates in the European and American sessions.
Fishing against the structure
The second type, and it is the opposite of the first in every respect. He is blunt: this carries high risk and it usually happens unexpectedly — unscheduled news, or an artificial move by a market maker.
It forms against the trend, at P2 areas. Which is the sentence that closes a loop from lesson one: P2 is the no-trade point. So his conclusion follows directly — a double bottom or double top against the trend is a trap, not a reversal pattern. The shape is the bait.
If you are going to take it anyway, his conditions:
- It is high risk and stop-outs are frequent. Use minimal size — a third of the daily risk.
- The fishing distances here are short, so take most of the position off at a risk-reward of 1:2.
- Use footprint charts for this one rather than a plain candle chart.
- Watch the fundamental news.
- The fishing zone should have an opposing delta.
What it looks like while it is happening
Six observable things, and they come in an order. The first four say a hunt is under way; the last two are the confirmation that it is finished and the real move has started.
The fourth one is read off the market speed panel from lesson five, and the pictures below are the three windows he watches all of this on.
- The delta opposing the movement increases.
- Big size and sweep orders appear against the movement.
- Price closes below the high-volume area.
- The market speed gauges rise, and the change is in the opposing direction.
- After all of the above — big size or a sweep in the direction of the main movement.
- Price closes above the sweep when the low was fished, or below it when the high was.
What to take from this one
Three things, in order of how much they matter:
- The obvious level is where the stops are, and the stops are the liquidity the move is funded with. Yesterday's low is not support in the ordinary sense — it is a reservoir.
- The two types are opposites. With the structure it is the best entry available, taken at a P3 that volume never supported, and the market will fish against the news before it goes. Against the structure it is a trap at P2, taken at a third of size if at all.
- You do not trade the spike. You trade what comes back out of it — and the sweep turning to face the main movement is the sign that it has.
Next: the arithmetic that decides whether the account survives
This lesson said "a third of the daily risk" without saying how the daily risk is set. Lesson seven is that: percentage risk, lot sizing, the daily and weekly ceilings, and scaling out of a position.