Stop Loss hunting and the whipsaw effect explained

5 thg 6, 2017

Regularly we see price break out after a consolidation, only to suddenly reverse and break out to the other side. Then, we continue swiftly in the direction of the initial breakout creating a "whipsaw" effect. Why is that ?

In simple words, it is the smart money that attracts retail traders by pushing in one direction (mainly breakout traders) and put their stop in the obvious location. Once there is enough volume, they will push the price to where they want to make their move.

I'm giving here an example on the chart with explanation of the actions, I hope it helps you understand these sudden moves. I'm not saying that GBPUSD will move this way, it is not a trade prediction, rather giving you an insight of how stop loss hunting usually takes place.

If you'd have any questions, let me know. If you like this explanation, give it a thumbs up !

Thanks and trade safe !