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Wednesday, January 4, 2017

Stop Hunt on Natural Gas taken out - advanced trading techniques

Stop Hunt on Natural Gas taken out  

I've been bearish Natural Gas for some time,, and yesterdays 10% decline in NATGAS offers the perfect opportunity to talk more about, "stop hunting", which I briefly referenced in blog a few weeks ago. In short: stop hunting is being able to identify where everyone has their stop-loss set. Typically you see this after a higher high, in which resistance is taken out (shaking even the most bearish traders). That level now becomes what looks like support (seen in pink on the chart below), but this higher high is only used as an opportunity for the bulls to take profits. This is where the smart money sells. You could also call this a "bull trap", because it's actually a false breakout, and the retail bull is the one left holding the bag....  

DEFINITION of 'Stop Hunting'

A strategy that attempts to force some market participants out of their positions by driving the price of an asset to a level where many individuals have chosen to set their stop-loss orders.

Read more: Stop Hunting Definition | Investopedia
Commodities traders took out the stop hunt on NATGAS, and it plummeted 10%. I've identified this stop hunt, on the chart below, and the gap down confirms it. Today we're seeing a little shakeout below 3.35 support, but now I'd expect a dead cat bounce off that support. May even back-fill the gap in due time, but this looks like a major reversal to me. 

This is typically how commodities trade, shaking out the weak hands on both sides of the trade, and more and more - lately - we see the same thing in equities markets. This explains why searching for accurate technical targets is not nearly as important, as having the discernment to recognize false breakout's, and shakeouts, at pivotal turning points in the market, and being patient enough to allow the trade work. Building a top, is not much different than building a base; it's takes time. 

Speaking of commodities: Trading commodities offers far greater risk than trading equities, due to their inherent volatility. It's not for everyone, and trading commodities is especially NOT for the unlearned. Same goes for volatile sectors like gold miners, and biotech, and their 3X levered (ETF) counterparts. Ask the gold gold bugs of 2015, and those now trapped in their NATGAS long trades....        


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