USD/CAD Traders Playing “Stop Hunt”

In quiet markets, traders may want to position themselves on the same side as “big money”.

Charts (5)

The day after Easter has historically been a slow day in world market trading as many countries are still off for the Holiday.  However, the US markets are open.  On a normal trading day, markets are typically quiet near the 3:00pm ET New York fix.  However, on a day such as today, when many participants are already out, it could lead to some volatile moves.  Big money is sometimes able to take advantage of these quiet markets and move certain markets to where they believe there are resting stop orders.  If these orders are triggered, it can cause a cascading effect and cause the market to move even further in that direction.

That appears to be what may have happened late in the day during New York hours today in USD/CAD.  On a daily timeframe, USD/CAD has been in a consolidating triangle since early March.  On Friday, price traded to the bottom of the rising trendline of triangle and closed just off the lows near 1.3951.  Today, price broke lower out of the triangle and is trading at its lower level since March 16th!

Source: Tradingview, FOREX.com

We can see this a bit better when zooming in on a 60-minute timeframe.  Price movement in USD/CAD has formed a descending triangle, in which price consistently trades down to a horizontal support level (in this case near 1.3920) and bounces, putting in lower highs each time. As price approaches the apex of the triangle, it is expected to break lower.  However, imagine traders who are on the other side of the trade and bought the support level each time.  Where could those traders have placed their stops?  The most likely place is below the horizontal support line.  In quiet markets when there are less participants, if the support level breaks, price is likely to take out those stops. 

Source: Tradingview, FOREX.com

Today, traders pushed price below the support level and took out the stops!  USD/CAD traded from 1.3937 down to 1.3867 in roughly 30 minutes, on little volume.  Watch for a bounce overnight back up to the previous support level (now resistance) at 1.3920.  In quiet markets, traders may want to look for set ups such as this and try to position themselves on the same side as “big money”. 


Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.