Why is the price unfolding after my Stop-Loss?


Today we will discuss one, it is possible to say, rhetorical question, which often arises both in beginners and quite experienced traders. This question is as follows: "Why, as soon as my stop works, does the price unfold?"
In fact, why does this happen, does the market see where you put your warrants, and why do you want to kick them out, immediately turning in the original direction?
Main idea
Let 's say you found the "Takeover" model on the chart and concluded that the price would go up in the future. It does not matter whether the indicator or the trading system showed the signal. The question is, where would you put stop loss here? Most likely, either under candles or near the last local minimum. It would seem to be all right, but then the price knocks your stop loss, and leaves as intended, upstairs. I think you can give a lot of similar examples yourself.
Why does that happen?
The fact is that in addition to other traders like you and I, there are big players: hedge funds, banks, various institutional investors. They open quite large positions, that is, positions of very large volume, which require a sufficient level of liquidity.
If a similar position is attempted to open in the middle of the trend, the large volume can shift the price strongly in the direction of the position, but after that the price is highly likely to roll back, leaving the trader at a disadvantage.
So big players have to trick and look for places with a lot of liquidity for sale to buy profitably and vice versa. Actually, your stop loss for a purchase item is nothing more than a sales warrant. Accordingly, it is advantageous for a large player to take exactly this liquidity in the form of stop loss and delayed sell stop warrants, and thus gain his own position without much shifting the market price.
You surely wonder how such a major player might be interested in such minor positions. But the fact is that about 95% traders put warrants in roughly the same places. Accordingly, since people think the same way, big players do not need to see all insider information about where your stop loss stands - it is already quite obvious. After liquidity has been absorbed, the market goes in its direction, but without you.
Most market participants put stop loss in one of the listed places:
    • Local minima / maxima;
    • Support/resistance levels;
    • Round levels;
    • Beyond the boundaries of channels, boxes, and other consolidation patterns.
Where to put stop loss?
1) The first thing that comes to mind is not to put a stop in principle, there 's no foot - there 's no problem. However, this practice will not be suitable for everyone. If you are recently in the market, working without a stop loss, that is, keeping it in mind or using a virtual one without putting directly into the market is dangerous, and this practice often results in large losses or loss of the entire deposit.
2) Some use various technical tricks, applying the so-called virtual stop loss. I mean, the warrant will close, but its advisor will close, not an automatic market order. But, in fact, it doesn 't matter whether it is worth stopping in the market or not - the behavior of large players from it won 't change.
3) The next logical solution is to put a stop loss with more stock (at a longer distance). This decision is not the worst and has the right to life. The stock, however, should not be the largest, otherwise you just increase the risks for nothing. Such an option will not help in all cases, but in general it is not a bad compromise.