Have you ever placed an order with confidence thinking that the market is going to go up, but price hints your stop loss before it starts turning out to your predicted direction?? I have been a victim of stop hunting, and i was very disappointed, but that happens several times in the market.
Banks and financial institutions know how we trade the market, they know how we think, and where we put our stop losses and profit targets, this is the reason why they could easily take money from us.
One of the most famous strategies that big players use to take money from novice traders is called stop loss hunting strategy.
This strategy consists of driving prices to a certain level where there are massive stop loss orders, and the purpose is to create liquidity, because without liquidity, the market will not move.
Once stop losses are hunt, the market goes strongly in the predicted direction.
The interaction between big participants and novice traders create repetitive patterns in the market, one of the most important candlestick pattern that illustrates how big financial institutions manipulate the market is the inside bar false breakout pattern.
Your understanding of this repetitive setup and your ability to detect it on your charts will help you better exploit it to make money instead of being a victim of market makers and banks manipulations.
This price action signal is formed when price breaks out from the inside bar pattern and then quickly reverses to close within the range of the mother bar.
See the illustration below:
As you can see, there are two types of this price action pattern:
A bullish inside bar false breakout that forms when the market is trending down and it is also considered as a bullish reversal signal when it is formed near a key support or resistance level.
A bearish inside bar false breakout that occurs in a bullish trend and it is seen as a bearish reversal pattern when it is found near an important level in the market.
This setup can be considered as a continuation pattern if it is traded with the trend.
Inside Bars false breakouts trading examples
In my own experience, the most important levels that traders should look for to trade this signal are the following:
-Support and resistance levels, and supply and demand areas
-Fibonacci retracement levels, particularly, the 50% and 61%
-21 moving averages and trend lines in trending markets
-Horizontal levels in range-bound markets
Here is an example of how to trade inside bar false breakout in a trending market:
As you see in the chart above, the market was trending down, that indicates that sellers are in control of the market, so if you decide to sell the market near the resistance level, all probabilities will be in your favor.
But the question is when to enter the market? And where to put my stop loss?
If you enter the market aggressively before the breakout of the mother candle, and you put your stop loss above it, the market will take your stop loss and go in the predicted direction.
See the illustration below:
As illustrated above, big players hunt novice traders stops before pushing the market to go down, if your stop loss was near the resistance level, you would be out as well, if you don’t understand the reason why, it is simply because you were a victim of big players hunting stop strategy.
If you are familiar with trading the inside bar false breakout, you will understand what happened in the market, and you will simply take advantage of this manipulation instead of being trapped by the market. See the example below:
As it is illustrated above, the inside bar false breakout gave us a good selling opportunity.
If you are able to identify this setup, and you understand the psychology behind it, there should be no reason not to get into the position.