Market Structures and Stop Hunts

Market Structures and Stop Hunts: Part 1


Those in the cryptocurrency community that trade will be aware of both the importance of ‘market structures’ as well as the existence of ‘stop hunts’. Being aware of these potential setups could very well save you from an expensive market entry mistake.

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Market Structure/Price Action 101

Price action is defined as:

‘the movement of a security’s price plotted over time. Price action forms the basis for all technical analysis of a stock, commodity or other asset chart. Many short-term traders rely exclusively on price action and the formations and trends extrapolated from it to make trading decisions.’

Traders will often combine their knowledge of various candlesticks, such as Harami cross, engulfing pattern and three white soldiers, with other technical indicators in order to accurately extrapolate the most probable future price movement. Cryptocurrency traders in particular have embraced Elliott Wave Theory as a key technical indicator, as well as heavily using Fibonacci ratios.

Interestingly, the popularity of these indicators seems to have differentiated cryptocurrency traders from their Forex cousins; where the overriding trading vogue can be described as ‘less is more’. Many trading channels advocate price action/market structure analysis over layers of complex indicators and triangles. This subtle difference has created a substantial effect on how the two groups set up (and plan) their trades.

Stop Hunts

A controversial topic from both camps of traders; stop hunts are supposedly when large market players want to avoid slippage – conspiring to manipulate the direction of an underlying asset in order to trigger stop losses placed either side of a support/resistance level. This has the effect of exaggerating a temporary breakout/pullback in order for the larger player to fill their orders before allowing the asset to continue on its trajectory.

‘Barts’ have long been a joke amongst cryptocurrency traders regarding Bitcoin, with incredible (and often violent) spikes in price. The motives behind these sudden moves are mostly attributed to large institutions employing the ‘stop hunt’ playbook to fill their orders and trigger stops. Whilst no direct evidence has ever been produced, such drastic moves are a common occurrence in these  largely unregulated markets.

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So is it possible for cryptocurrency traders to use the phenomenon of stop hunts, as well as minimalist Forex price action analysis, to their advantage? Find out tomorrow in part 2!