Stop Hunts In The Forex Market
It’s not what you think
This particular topic is a bit taboo in Forex trading for some and a real reality for others. But how can that be? If you’re new to Forex then allow me to disabuse you of the notion that everyone experiences the market the same way.
There some who experience a wonderful place of opportunity and reward while others seem to be living a nightmare blowing account after account after account. Knowing what stop hunts are, that they exist, and how to spot them can be a great tool helping you understand this environment and turn it into a place where you can prosper.
Stop hunting is exactly what it sounds like. It is when someone is hunting YOUR stop-loss. You cannot hunt stop losses, I know it’s unfair but that’s just how it is. Now if you pay attention you will have noticed I said SOMEONE is hunting your stops, but who? Who could do something so messed up?
No, not your brokers. Your broker (most of the time) wants to see you win because the longer you stay in the game, the longer they get paid and that’s just the cost of doing business. So Who? You guessed it! BANKS. That’s who is bullying your stops.
First we’ll go through what a stop hunt looks like so you have an idea. If your price chart just seems to gap 100-150 pips against when you are in trades then it’s most likely your unregulated broker pulling dirty tricks, stop hunts aren’t nearly that bad.
GBPJPY M15 – Buy Example
(Source – TradingView)
In Example 1, you’ve done your homework and have a bullish bias and you’re just waiting for price to come to you and enter support. Finally, price come and tests support at Point A and after you enter the trade price swiftly comes back to test that same support at Point B.
But this time, price goes deeper into support and most probably takes out the stop you placed under the low formed at Point A before lifting off like a rocket while you get left with the bag.
This occurrence has been the frustration of many traders and is a reality that has to be dealt with because it does happen and can cause you to lose wining trades, which is the last thing any trader wants.
In Example 2 below, Point A seems to be a good place to place a stop-loss but low and behold the banks come and sweep that high before dropping the market like a stone.
GBPJPY M15 – Sell Example
Why the trouble?
Why would the banks do this? Why would such big pockets bully small traders and trip up their stops just to have the market go in the direction they intended? Check this out. They do this because they have such big pockets.
Let me explain, they have so much money that they can’t put on the entire trade without moving the market too much from the point which they want to get in at.
The banks figure the way to put on this trade would be to spread it across the area they want to buy in, if it’s a long position and what better place than the place just below where there is a whole bunch of LIQUIDITY (MONEY) where they can “trade with you”.
AKA take the opposite trade of your stop-loss and then and only then move the market in their favor when they finally have the full position on.
Can something be done about this?
Well… I don’t have the best news for you and I’m just being honest. You might hear from certain traders that trading without a stop solves this problem and whilst I don’t have a problem with using a MENTAL STOP, I don’t completely agree with it.
The reason I don’t agree is because I don’t do that personally so I can’t recommend anyone else do that. Some top Veteran traders don’t use stops but I really don’t think rookies should trying this, mainly because they haven’t mastered how to manage their risk yet.
Your MENTAL STOP isn’t connected to a server somewhere that will activate even if you die. If you get distracted or simply get busy and can’t keep an eye on the chart you could easily come back to a drawdown of 10-20% or even a blown account.
Again, to me, in my mind… it just doesn’t seem worth the trouble. But If not a mental stop-loss then what? What could we possibly use against these stop hunts?
If I get a better answer, you guys will be the first to know but right now, let your stop get hit. Take the L, that you’ve already pre-calculated, so it will be manageable and watch price action unfold after (to see if you should re-enter).
Should price fail to break the low/high where you set your stop and you can get back in the trade safely, do that, but risking less this time because essentially your trade should still be valid.
But don’t force these things and if you’re a newbie, risk even less if you’re giving it another shot. Staying Alive should be your main priority when you’re starting out.
Certain brokers, such as Plus500, offer guaranteed stop losses, which allows you to set the maximum amount you are willing to lose (protecting against gaps). Check them out for this and many other benefits.
Don’t bet the farm.
Don’t lose your shirt.
Cut the L.
Keep the W.
Stop hunts FAQ
Yes they are. There are big traders that need liquidity to fill their positions and trade in a different way to retail traders. Areas with a lot of stops provide the most liquidity.
If I get a better answer, you guys will be the first to know but right now, let your stop get hit. Take the L, that you’ve already pre-calculated, so it will be manageable and watch price action unfold after (to see if you should re-enter). Should price fail to break the low/high where you set your stop and you can get back in the trade safely, do that, but risking less this time because essentially your trade should still be valid.