Many retail Forex traders are concerned about stop-loss hunting because they are virtually powerless as individuals to defend themselves the powerful «hunters». In this short article, I’ll explain to you what stop-loss hunting is, and how you can avoid being prey to it.
What Is Stop-Loss Hunting?
Basically, stop-loss hunting is a trading strategy that tries to force retail traders (like you and me) out of our positions by driving the market price to a level where our stop-loss levels are placed. This is a strategy that the investment banks and hedge fund managers adopt because they have the resources to do it.
Simply put, the big financial institutions buy (or sell) a large amount of currency that causes the market price to go up (or down), hitting the retail traders’ stop-loss levels, and causing us to exit the market at a loss. In the meantime, they will gain from our losses.
How Do They Know Where Our Stop-Loss Levels Are Placed?
Usually, this happens when there is an obvious support or resistance line on the trading charts. With a clearly defined resistance level for example, institutional traders will know that many retail traders will place their stop-loss trigger just a few pips above the resistance line.
Your trading brokers will also know exactly where your stop-loss triggers are placed. After all, they provided you with the trading platform, didn’t they? Whenever you place a stop-loss order on your trading platform, the information will be relayed back to the broker, and he will know your exact stop-loss price.
It’s hardly fair game, huh? The odds of profitable trading are highly stacked against you. That’s why you’ll need to fully understand the risks of trading, and how to avoid them.