$ES_F – Liquidation at the highs

Todays price action at the close reminded me of something from the Market Wizards interview with Paul Tudor Jones:

“One thing I learned as a floor trader was that if, for example, the old high was at 56.80, there are probably going to be a lot of buy stops at 56.85. If the market is trading 70 bid, 75 offered, the whole trading ring has a vested interest in buying the market, touching off those stops, and liquidating into the stops—that is a very common ring practice. As an upstairs trader, I put that together with what Eli taught me. If I want to cover a position in that type of situation, I will liquidate half at 75, so that I won’t have to worry about getting out of the entire position at the point where the stops are being hit. I will always liquidate half my position below new highs or lows and the remaining half beyond that point”.

 

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