Stop Loss hunting by Smart Money. Well known technique.
Biggies would know , where retailers are likely to put their stops(based on Fib level, S/R etc etc). And they have money, lots of it.
Suppose they decided to take up Nifty. And retailers also thinking, NF will go up.
Now retailer buys NF and then places a Stop at his perceived reversal point based on fib SR or whatever.
Now these Stop orders sitting in exchanges are actually a Short position created by retailers as limit orders.
(Biggis don't need brokers to tell them this inside info, they will hunt it out)
Now if NF moves up, Biggis will have to share their profits with these Long retailers. Which they don't want obviously. So they need to flush these retailers out.
They have the money, lots of it.
So they start shorting, they bring NF down to levels where they think retailers have put stops (Created limit orders shorts). and buy punching aggressive market orders, they eat out these stops.
Onces they know there are no more shorts remaining, they start punching buy orders. Marking up the NF and NF shoots up. They laugh all the way to bank. Retailers are left blaming brokers, exchanges, own luck etc etc.
That's why you see many a times, before brake out above, there is initially a so called failed breakdown attempts (Its Biggis at work, flushing out retailers)
So if your are convinced of a directional move, the worst thing to do is to put a Stop. Most of the time it will be eaten.
So what to do, have deep stop loss. Even that can be eaten, more heartburn. And it defeats it purpose.
Better to know, a point from where mkt will reverse, and close trade yourself than to let Biggies stop you out. Or find other ways.
