Stops 101

On Friday, we had a huge downday. Today as expected, we're consolidating so far. In the morning, we surged down quite a bit, but snapped back since. I bet some people bought at the close of Friday expecting for markets to bounce up based on maybe Trin or something. But this market is not setup that way.

If you look at daily chart of ES or YM, we're sitting on support level from Summer spike lows. If you're big institutions, what would you do? Or ask yourself this, if you're long now, where your stops would be? Below those support levels. What institutions do is to push markets lower until they 'wash' out stops on those levels before snapping back up. Have you ever felt that markets know where your stops are? You get stopped and price goes even beyond your target level? This is exactly what's happening.

Also take a look at October 2007 high, markets went just a little tiny bit higher than prior high and headed lower due to the exact same reason! There are markets where you can put stops around support/resistance level, but not certainly for stock indexes, which are 'fading' markets.

Now, pros are looking to short this market, but where? I would say around 13100 level, which is where I plan to enter, expecting to run stops from summer spike low. The ideal entry would be pivot levels after drilling down in 30 or 60 min chart. I probably need to give some room to breath due to volatility.