I made brief reference to a stop run action in this post and I just wanted to give you a more clear example.
This is Soybeans on a 5-min candle chart, between the evening open of April 9 and the morning of April 10. The market opened positively, following the non-threatening talk by Xi Jinping at the Boao conference and then stalled, trading in a range for the rest of the night. If you thought that a break of the overnight highs would have been a good place to go with the new strength, you would have been right, but your stop needed to be wider than at least the day range and certainly the night’s range (highs and lows). Why? Because big traders come in at 8:30 AM Central time and look for pockets of liquidity, where a lot of small traders’ stops are and pick their pockets. Thank you very much… See the arrows and see the volume bar at the bottom. Big guys win. Small guys lose.
To survive, the small guy needs to have enough cash to put his stops out wide and wait for his trade idea to materialize, which in this case, it would have only a couple of hours later than initially expected.