Every time your stop loss is triggered, the market moves in your direction again. When you're right, but your position is gone, doesn't it always feel like the market is just targeting you?
The following are the “three-step” psychological traps that retail traders fall into when setting stop losses, which are also the roadmap the market uses to harvest. Let’s take a look at what kind of psychological loop leads retail traders to hand their stop loss orders over to the slaughter.
🔹Step One: Instinctive Drive
As traders, the most basic and intuitive action we take when setting a stop loss is to place it at a swing high or swing low on the chart. This is the most primitive form of risk management.
🔹Step Two: Seeking False Security
Humans are inherently drawn to seek protection in places they perceive as “solid.” On the chart, we project this psychology onto swing highs or swing lows.
For example, a swing low is defined by the lowest price of a candlestick, with the lowest prices of the candlesticks to the left and right being higher. Retail traders believe that these visually prominent points are reliable protective barriers.
The fatal fallacy lies here; what retail traders perceive as the most “safe” positions are precisely the areas where liquidity is concentrated and most likely to be attacked in the market.
🔹Step Three: Greed Determines Distance
One of the powerful emotions driving retail traders is greed, which forces us to pursue high returns, inevitably leading to one outcome: setting stop losses too tight.
When the need to “find a safe zone (swing highs and lows)” collides with the greed of “setting tight stop losses,” it results in the final decision: retail traders will choose to set their stop loss at the closest “safe” swing high or swing low to their entry point.
The liquidity the market requires is all at the stop loss levels set by retail traders. Therefore, to find the maximum liquidity, one only needs to aim for those swing highs or swing lows closest to the entry point.
The analytical method I use is purely technical analysis, relying on no indicators, but solely identifying liquidity driven by retail behavior patterns through S&R and market structure—understanding retail behavior and emotions.
Before your next entry, ask yourself: Is the stop loss I set exactly the point the market wants to harvest?
