So I have put together a video to shed some light on the matter.
I also share some of the things I have learned from bank and hedge fund traders that are critical to consistent trading.
You should find the video revealing.
(In addition there is a bonus video on entries in bull/bear market types.)
Here are a few points from the video:
The big players don't care about your stops
The truth of the matter is that retail trader's stops don't factor on the radar of bank traders at all. In-fact professionals don't even see retail stops on an individual level, nor could they care less because the sizes are too small.
Big players care about groups of stops
That is not to say, professionals don't care about stops. Stop orders are very important to the institutional traders on an aggregate level - that is, they care about where large groups of stops are sitting.
This could happen when, for example, a large number of retail trader's stops are sitting at the same level, or it could be where a corporate or fund has orders placed.Even though a bank trader only has knowledge of their own book, this grouping of stops is generally happening across a number of banks at the same time, so they will make assumptions about the positioning of the market.
The price is attracted to the supply at key levels
Once the trader is aware of the supply of liquidity at a certain level the market will often trade towards it.
Why? Two reasons:
The motivations of the trader
For bank traders, their first motivation is safety - they don't want to lose money.
The key levels are where there the liquidity is the deepest, where it is safest. If a bank trader needs to execute a trade they need a supply of orders to execute it against.
If there is no liquidity at a certain price then they will have to rapidly re-adjust both their thinking and their positioning because they are at risk.Conversely if there is plenty of liquidity at a certain price, then the bank trader can go about their business without fear of the market getting away on them while they are holding a large position they are obligated to execute.
This way they can minimise and chance of losses and make money from the order execution.
The big players are not so different from you
It's interesting to note that while understanding the flow can be helpful, the bank trader still uses:
Support and resistance
The professional's main asset is experience in interpreting the markets, funds and time not any special information.
Learn more about how to use key levels in your trading.