Forex Stop Hunting: Don’t Get Mad, Get Rich
Many Forex traders are under the impression Forex brokers can’t be trusted these days. And don’t get me wrong, you should investigate your broker before giving them your money. And the most common concern is the belief Forex brokers are hunting their stops on purpose.
Some Forex traders are afraid to place a stop loss on their trade because they think their broker will do something to move price and take out their stop. After all, getting your stop hit is quite common. You place a trade and your stop loss … and then price immediately reverses direction to take your stop loss out before moving in the intended direction.
Yes, this can have you screaming at your computer. But I think your anger is directed toward the wrong party. It is more likely professional traders are taking out your stops and not the brokers. (After all, most of us are not trading amounts that matter in the big picture… so it is a little egotistical to think the broker cares about our puny trade ). There is a more logical explanation of what is going on.
As a matter of fact, you can use this as a Stop Running Setup to get into profitable trades.
Here is a typical stop running scenario. Let’s say you’ve identified the perfect short trade setup. You place your SHORT trade and place your stop loss above the recent swing high. And things see to go your way … Until price suddenly reverses and heads directly for your stop loss!
It is reasonable to suggest that the big traders also identified the short setup and want to make big money on the move. Therefore, they push price UP, knowing most people in the trade have their stop losses above the last swing high. Then they reverse their trade and go SHORT.
Doing this is beneficial to the pro trade in two ways. They enter the short trade at a much better price than they would if they just jumped into the trade in motion. They also create momentum by taking out the existing stops … knowing those traders are going to jump back into the trade to try to recuperate their loss. The big traders that move them markets now make more profit, faster.
So you see, stop running is much bigger than just you and me. It is more likely the market makers moving price to take advantage of the small, novice traders. You should be looking at the big players and not the brokers.
This is just one example of how learning price action Forex trading can give you insight into what the big Forex traders are doing. This is important to know because they are the ones moving price. Price action can give you clues as to which direction the big players want to trade … which you can use to trade WITH the pros, and not against them.
Stop getting so angry at your broker. It is unproductive and not going to help you get ahead in Forex. Learn to identify pro trader stop hunting and use it to your advantage. The next time you see a perfect trade setup that reverses to take out the previous swing high or swing low … get ready to jump back into the trade and profit with the big traders!