Hi RM
Its like the old saying goes, if you can't beat 'em, join 'em. I see this as a case where if the logic behind those "Zephyrs" (I like that name, I've never heard them before) is to take out trailing stops, then logically it can only be because people who have the muscle (the "smart money") are going to push price the other way, so why not jump on board if you can detect when they are doing that.
I already use the same principle in 1 of the 2 new EA's I currently have in demo testing and am targeting a live launch before Christmas. In the case of his EA I again am trading H12 bars but the same principle can be applied on any timeframe (and I plan to extend the EA to other timeframes). In this case, the EA is designed to identify (see examples I've marked up on the following chart - the H12 AUDUSD chart I showed earlier)):
- Spike Highs & Spike Lows (typically a highest high or lowest low for at least 10 bars, so in other words a potential major turning point - I have marked 1 example of a spike high and 3 spike lows on the chart
- The Spike High or Low must be followed by a "trendette" comprising a minimum of 1 Higher Low from a Spike Low or 1 Lower High from a Spike High (a trendette being the name my coach uses for an unbroken sequence of higher lows or lower highs from a spike low or spike high respectively) - after each spike you can see the count of the trendette sequence - 3 cases of 1 higher low / lower high and 1 case of 3 higher lows
- Then you will see where trailing stops will be hit, because there will be a bar (or sometimes 2 bars as shown in the 2nd example from the left) which just breaks the "trendette", designed as you say to take out trailing stops. Once one of these trendette breakers breaks the trendette sequence, I take that as a signal that price will actually reverse and move further in the direction away from the spike
- Then I wait for the break of the high or low of the last bar in the trendette sequence as the entry point to join that move.
This strategy has about a 55-60% strike rate depending on exit strategy, and I am already looking at strategies using lower timeframes (like the M1 & M5 examples I showed earlier) to get in on the move earlier than the H12 bar high/low (see the last example circled in blue on the H12 chart and the corresponding H1 bar zooming in on the H1 price action where that trendette is broken)
So you can see how the price action on a lower timeframe can pick up the act of breaking trailing stops set at the low of that first higher low.
So imo yes these stop hunting moves can be annoying, but the telltale signals are there of what is happening and if you look you can see what's going on and figure out actually how to take advantage and exploit it, rather than being one of the targets.
Cheers, Sharks
