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Stop Run Reversal Day Trading Entry EUR/USD | October 27th 2011

October 27
05:12 2011

In the last recent trade update, I briefly went into the smart money model. Here is an extremely clear example of the market consolidation before a large market move. In the last update, I also spelled out the facts about consolidation in that it is the vast majority of the time hidden accumulation. Therefore after a long accumulation period, we were anticipating a very nice move, and that is exactly what we got!

I will make this update brief because I just finished the 3 part article series on how Smart Money moves the forex market. The article series is entitled Learning To Trade Forex With Smart Money. If you haven’t viewed them yet, I welcome you to go check it out. The chart you see here will make a bit more sense once you go through the educational articles. Anyway, on to the trade setup.

Initially, the candle that jumped out of the range looked like a jump bar up to me and it, in fact, fulfilled all the criteria that we look for (I will cover the criteria in the coming days with another article). Therefore when the next candle began to pull back, we took the entry long at 1.3933 and closed this trade out for -10 pips. One thing I feel new traders dismiss to frequently is the information you gain from being stopped out. Here the market showed clear intent to the upside. That intent failed. Often when you have a strong false intent based move that is rejected equally as aggressively in the opposite direction, the market will move a great distance. Knowing this we took the next trade short after the candle closed down below the accumulation.

At this point, we knew what SM had been accumulating with a high degree of accuracy. The reason for this is the stop run. Why is price ran above the resistance? Think for a second what type of orders sat above the highs of the accumulation. There were stop-loss orders for anyone who was short before the move up (thus a buy order), and there were buy orders for those looking to take a long on the breakout. Therefore by driving the price above the resistance Smart Money pushed the price into plenty of buy orders that they were able to sell into at a great price. Therefore if they caused the stop run to accumulate buy orders wouldn’t it make sense that the sideways accumulation was as well buy orders. It is critical to read the lessons mentioned above to fully understand the Smart Money market cycle. Once you understand that, you will see how perfect this setup was, in that it contained exactly what we look for in a ‘perfect’ trade setup. Accumulation, stop run, market trend.

As I mentioned above, we entered the market right after the first down candle formed. Based on the formation of the candle you can see that it completely engulfed the entire accumulation area. Half of this trade was closed for +40 pips, and the last half was closed for +100 pips. Overall this position netted +70 pips which brought our total to +275 for the month.

Happy Trading,
Sterling

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