Stop loss hunt: Stop loss hunting strategy: BE the hunter, not the hunted

Stop loss hunt

Stop loss hunt

It’s kind of like what Paul Rotter would do in the bond market. He would enter a large pending order in one direction and when traders tried to ride that trade, he quickly cancelled the order and entered a trade in the opposite direction. But legitimate, regulated brokers could really care less about your stop losses.

Investopedia does not provide tax, investment, or financial services and advice. The information is presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Investing involves risk, including the possible loss of principal.

I expect that you’ll have noticed how sometimes prices move sharply away from key levels, just spiking up to touch them. But other times, the price gets congested at a key level – it’s exactly these ‘messy’ levels we want to take advantage of. Instead of being a dumb money retail trader who blindly sells breakouts, you’re now following the smart money. This strategy is designed to help traders truly take advantage of how the smart money views markets. Anywhere that there’s likely to be a cluster of stop loss orders ripe to be hunted by institutional traders, the indicator displays a thick line, directly onto your MT4 chart.

Using their substantial financial backing, they propel the market towards a cluster of stop-losses, forcing small-time investors out of their trade positions. When most traders get stop-hunted or have their stops triggered, they often feel like the markets are conspiring against them or their brokers are trading against them. This is because stop loss hunting usually occurs under the orchestration of large institutional investors capable of influencing market direction, as noted earlier. You have to start putting yourself in the shoes of the large institutions and big-money players. These institutional outfits are continually in the search for pockets of liquidity in order to fill their desired positions in the market.

Stop loss hunt

It takes money to move a stock and in this example if they are placing big sell orders to bring the stock down from 101 to 99, that requires a lot of money. Of course not, but there are a few things that you can do to minimize its negative effects. If you are using a super dodgy unregulated broker from a suspicious country, then you might see some abnormal price movements. Stop Loss hunting scenarios will always happen, and to be honest, we cannot really avoid them all.

Below is an example of the ATR indicator plotted along the lower pane of the daily price chart of AUDUSD. Bitcoin keeps attracting high profile investors, funds, companies of all sizes, as well as retail investors. India has witnessed several instances of insider trading in the securities market. This is not just unfair for the other innocent investors, but also adversely affects market liquidity. That, I think, is the most important question and it goes to the broader philosophy about stop-losses. These big guys sometimes also have insider information from brokers who have access to data.

It is very useful in helping to gauge the current market volatility. We can use this indicator in helping us better evaluate the optimal stoploss placement. In fact, Insider trading is one of the most serious malpractices that exist in the stock market. VRD Nation is India’s premier stock market training institute and we are passionate about teaching each and every aspect of investing and trading. So, these institutions need a higher level of volatility to sell these options to get a better price. So obviously the stock prices fall; sometimes 2%, 3% or even higher.

See, whenever there is hunting, there is a hunter and there is a prey. When stops are triggered, price action experiences more volatility on the additional orders hitting the market. Support and resistance levels are markers for where everyone else is in the market – pointing to where other investors have placed their stops and targets. The point of this trading strategy is not to imitate institutional players, but instead follow what they’re doing and never push against the immense power of smart money flows. However, this is most often done simply because the prices quoted from liquidity providers reflect a thinning of the underlying market during these periods of unpredictable price action. Stop hunting has such negative connotations within the retail Forex trading realm, but in reality it’s just a lack of understanding around what’s actually happening within markets.

You know Support is at $100 and ABC stock is trading at $110. If you were to enter the market you will likely push the price higher and get filled at an average price of $115. Because only losing traders blame the market, their broker, the smart money, and everything else — besides themselves. Well, it’s a term often used by losing traders who got get stopped out of their trades, only to see the market reverse back in their intended direction. First you need to understand the difference between stop loss hunting and market manipulation. Price manipulation as we know it, is done by institutions and not by brokers.

The reality is you are making yourself easy to hunt, but even in the volatile crypto markets, there are some strategies that can help. There are a number of elements to these kinds of scenarios and an understanding of stop-loss hunting may also lead to more understanding of trading in general. Once understood, there are some strategies that can help you avoid these scenarios in the future, and follow the big money. Stop loss hunting is a trading strategy employed by large investors to realize short-term gains.

What is stop hunting?

We have carefully orchestrated some examples on the graph to give a clear picture of what this phenomenon really is, and listed some tips on how to avoid getting into this mouse trap. Forex is the market for trading international currencies. The name is a portmanteau of the words foreign and exchange.

Some indicators can be useful to spot these buying or selling zones. Unfortunately one will never be sure if the spike is indeed due to manipulation or if it is a whale going short. While you might not be able to prevent or avoid stop loss hunting entirely, there are several things you can do to reduce the incidences. Follow the valuable tips discussed here, and you will not only reduce your chances of being stop hunted, but with time, you’ll also become a better trader. Avoid setting your stop loss randomly or based on a certain percentage or dollar amount you’re ready to lose.

In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk of actual trading. For example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect actual trading results. Futures and forex trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment.

However, there are some tips that we can follow in order to evade these traps. Stop Loss hunting happens every trading day, and it’s not something you would want to let fly under the radar. A pip is the smallest price increment tabulated by currency markets to establish the price of a currency pair.

Because the stop-losses are all in the same place, they trigger a further huge wave of selling, causing the price to drop suddenly. The price drop can be severe as a result of this, especially in the highly leveraged crypto markets. When the hunters then step in and start buying at the lower-priced levels and they increase their return on investment.

Stop loss hunt

Below such rejections, many people place their SL orders. Let’s now talk about what is the reason of this “SL hunting” and let’s use a recent example. In today’s article, I am not going to tell you which type of order to use, because that was the main message of the previous one. Today, I will focus on another interesting phenomenon related to this topic – Stop Loss Hunting. Rayner Teo is an independent trader, ex-prop trader, and founder of TradingwithRayner. I am happy to know you learn something from Rayner’s blog.

Stop running is most prevalent near clear support and resistance levels. As such, we will sometimes see that what appears to be a clear upside break out from a resistance level fails to materialize, and quickly rejects downward. And conversely, we will see what appears to be a clear downside break out from a support level fail to follow through, and leads to a fake out bringing prices back higher. The phenomena of stoploss hunting describes a scenario wherein you have entered into a position and set your stoploss price.

#3 How Can You Prevent Your Stop Loss From Being Hunted

I just can’t thank you enough may God keep on increasing you with more wisdom. This allows them to buy from traders cutting their losses, which offers them a more favorable entry price. Go look at your charts and you’ll often see the market taking out the lows of Support, only to trade higher subsequently.

The stop loss hunting strategy

Now that you understand the underlying psychology behind stop running activity, you can take steps to protect yourself from these price moves that can adversely affect your position. Additionally, once you recognize what the stop gunning patterns appear like on the price chart, you can build a framework for joining the Smart Money, and take advantage of these swings. Anyone who has experienced this can vouch for how frustrating it can be when this happens on a trade.

Secret Weapons of Professional Traders

Therefore, the trader with the large order has to pay more to get the trade done. If you are not gonna think long and hard about where you are gonna put your Stop orders, you will easily get eliminated in a sea of Stop Losses. Thus, think outside of the box and have patience before jumping in a particular trade. Let’s take a look at two trades—one a short and the other a long—to see how this setup is traded in real-time. A stop order is an order type that can be used to limit losses as well as enter the market on a potential breakout. Swing trading is an attempt to capture gains in an asset over a few days to several weeks.

Tips To Protect Yourself From Stop Loss Hunting

The downside is that you may get a slippage, because NOW there might not be a big enough counter-party to Buy what you Sell, or to Sell what you Buy. There were so many little reactions to the low of the price channel, but not a single big and strong rejection. He is the most followed trader in Singapore with more than 100,000 traders reading his blog every month… Your explanation made me understand why the market was chasing me.. I don’t know if some brokers propose such feature for their stop loss but i would definitely be interested in that.