Setting up traps to catch novice traders

In this thread i will try and see if we can setup traps for catching some novice traders on the wrong foot and benifit from them.

The basic idea is the same as my other thread; I will identify strong support and resistance levels and based on those provide trading setups. These trading setups will generally be for intraday only. If the setup is valid for multiple days then will let you know in advance.

Todays setup: Please note that all the levels below are Nifty levels and not Nifty current month future levels.

We know that day before yesterday Nifty reverted back sharply from around 2957, and then found support at around 2900. So the setup is simple:

Short above 2950 with SL of 2965 and target of 2910.

Yesterday the market bounced from a low of around 2882 and hit a resistance at around 2930. So the other setup is also pretty simple

Go Long below 2890 with SL 2875 and target of 2920

the setup 1 is a better one in terms of risk rewards.

Sachin

In this thread i will try and see if we can setup traps for catching some novice traders on the wrong foot and benifit from them.

The basic idea is the same as my other thread; I will identify strong support and resistance levels and based on those provide trading setups. These trading setups will generally be for intraday only. If the setup is valid for multiple days then will let you know in advance.

Todays setup: Please note that all the levels below are Nifty levels and not Nifty current month future levels.

We know that day before yesterday Nifty reverted back sharply from around 2957, and then found support at around 2900. So the setup is simple:

Short above 2950 with SL of 2965 and target of 2910.

Yesterday the market bounced from a low of around 2882 and hit a resistance at around 2930. So the other setup is also pretty simple

Go Long below 2890 with SL 2875 and target of 2920

the setup 1 is a better one in terms of risk rewards.

Sachin

Perhaps you need to change the title of the thread ...

As the old saying goes, one should not bring a rifle to a cannon fight.
Likewise, those trading 1-2 lots cannot set traps upon others.

Those who have the ability to set the traps are in control of the markets. They have to power to temporarily disorient the markets for a few minutes - "make the chart patterns" to lure in others, "hunt out the stop-losses", and suck-out or flood the market with liquidity in matter of minutes.
Sell-side market makers have access to stop-loss order book and they can hunt your stops - it is perfectly legal. That is what is called setting up of traps.

People like you and me do not have that ability nor the power ...

I would take the title in a lighter vein. Anyways, keep posting.

Sell-side market makers have access to stop-loss order book and they can hunt your stops - it is perfectly legal.

Forex is worst of all as there is not central authority, regulator or cross-market rates. So, your forex broker is your god, and your devil.

It is partially true in Indian markets because :
1) Market wide stop-loss levels, and pending orders are not visible to individual brokers. However, all their client's pending orders and stops are visible. This is legal as they have to provide software support and basic surveillance.
2) Market-wide pending orders and stop-loss levels are visible to the NSE surveillance. This is to ensure that markets are working smoothly. Whether this information is compromised from time to time, I will leave that guess to you.
3) Remember that your brokerage also has trading arm. They can hedge and take proprietary trades. Whether information from #1 is used in their proprietary trading - you decide.
4) So, theoretically speaking, market wise stop-loss levels is available only to NSE surveillance.

Remember in India, a stop-loss has to be manually entered after a position is taken - so it is as good as a pending order. Interested parties cannot figure out whether it is a stop-loss or a stop-order. They can guess it based on volume, flow and open-interest.
For example let us say, you enter a long(LIMIT) order at Rs 100 when the price is Rs 101. Now after the price comes down to Rs 100, you enter a STOP at 98. Those who want to manipulate, cannot know for sure whether the order at 98 is to exit your long position or to go short. They have to guess that based on the volume so far and open interest etc.


In the US, official market makers and broker-dealers have access to sell-side order book.
Remember, that traders can enter a LIMIT order, along with a TARGET and STOP-LOSS.
So, let us say the price is 101, you enter at BUY LIMIT order @ 100, a STOP-LOSS @ 98, and PROFIT @ 102. Even before the your LONG position is executed, the sell-side market makers can see your BUY LIMIT @ 100 and STOP-LOSS @ 98. So, once in a while, there is a temptation to flood the market with liquidity run through your BUY LIMIT order and take out your STOP-LOSS @ 98.
After the S/L has been taken out, no new selling comes, so they can raise their ASK slowly, taking the price back to 100.
Remember, they cannot see individual orders - but only aggregate orders at various levels.
They may also not do this intentionally, but rather to supply liquidity to the market, or due to arbitrage between cash and futures etc.

Forex is worst of all as there is not central authority, regulator or cross-market rates. So, your forex broker is your god, and your devil. Say at 2:00:00 PM, a broker quotes EUR/USD at 1.2950 and there is a 50 pip spike in say a minute, it is possible that another broker has a 80 pip spike. Your stops can be taken out by broker #2, whereas the same position will not be stopped out at broker #1.
You have no reasonable legal recourse - but to accept the make believe trade made by broker #2. (as opposed to NSE where you can verify the contract note on NSE website)

It is partially true in Indian markets because :
1) Market wide stop-loss levels, and pending orders are not visible to individual brokers. However, all their client's pending orders and stops are visible. This is legal as they have to provide software support and basic surveillance.
2) Market-wide pending orders and stop-loss levels are visible to the NSE surveillance. This is to ensure that markets are working smoothly. Whether this information is compromised from time to time, I will leave that guess to you.
3) Remember that your brokerage also has trading arm. They can hedge and take proprietary trades. Whether information from #1 is used in their proprietary trading - you decide.
4) So, theoretically speaking, market wise stop-loss levels is available only to NSE surveillance.

Remember in India, a stop-loss has to be manually entered after a position is taken - so it is as good as a pending order. Interested parties cannot figure out whether it is a stop-loss or a stop-order. They can guess it based on volume, flow and open-interest.
For example let us say, you enter a long(LIMIT) order at Rs 100 when the price is Rs 101. Now after the price comes down to Rs 100, you enter a STOP at 98. Those who want to manipulate, cannot know for sure whether the order at 98 is to exit your long position or to go short. They have to guess that based on the volume so far and open interest etc.


In the US, official market makers and broker-dealers have access to sell-side order book.
Remember, that traders can enter a LIMIT order, along with a TARGET and STOP-LOSS.
So, let us say the price is 101, you enter at BUY LIMIT order @ 100, a STOP-LOSS @ 98, and PROFIT @ 102. Even before the your LONG position is executed, the sell-side market makers can see your BUY LIMIT @ 100 and STOP-LOSS @ 98. So, once in a while, there is a temptation to flood the market with liquidity run through your BUY LIMIT order and take out your STOP-LOSS @ 98.
After the S/L has been taken out, no new selling comes, so they can raise their ASK slowly, taking the price back to 100.
Remember, they cannot see individual orders - but only aggregate orders at various levels.
They may also not do this intentionally, but rather to supply liquidity to the market, or due to arbitrage between cash and futures etc.

Forex is worst of all as there is not central authority, regulator or cross-market rates. So, your forex broker is your god, and your devil. Say at 2:00:00 PM, a broker quotes EUR/USD at 1.2950 and there is a 50 pip spike in say a minute, it is possible that another broker has a 80 pip spike. Your stops can be taken out by broker #2, whereas the same position will not be stopped out at broker #1.
You have no reasonable legal recourse - but to accept the make believe trade made by broker #2. (as opposed to NSE where you can verify the contract note on NSE website)