Most of the forex trading beginners are curious to know about stop loss hunting. Since beginners are virtually powerless, they look for ways to defend themselves from influential hunters. Here, in this article, you will get information about what forex stop loss hunting is and how can you keep yourself away from it.
To know about stop loss hunting, it is best to start with a simple definition –
What is forex stop loss hunting?
This stop loss hunting is a kind of trading strategy that forces retail traders to go out of their positions by driving out the market price where the stop loss levels of traders are placed. This strategy is mainly adopted by hedge fund managers and investment banks as they have enough resources to do it.
To define in simple terms, the giant financial organizations buy a huge amount of currency that leads to an increase in the market price hitting the stop loss levels of the retail traders and compel them to leave the market at a loss. In this way, they earn profit from our losses.
How do you know when is the best time to place forex trading stop loss take profit?
This mainly happens when there requires a resistance line or obvious support on the trading chart. With a proper resistance level, institutional traders will come to know that most of the retail traders will place stop loss order just a few steps above the resistance line.
Moreover, when you hire an efficient trader to manage your account, the person must be aware of exactly when is the best time to place your stop loss trigger. After all, they are experienced traders and provide you the trading platform. Whenever you place stop loss on the trading platform, the information will be transmitted to your broker, and he will come to know about your exact stop loss price.
How does Forex stop loss hunting take place?
The situation of stop loss hunting takes place where large financial institutions buy a huge volume of currency that compels the market price to go up. This high market prices cause financial trouble for retail traders for which they need to leave the market at a loss and these giant organizations earn profit from these losses.
The institutional traders prefer to use stop loss hunting when the trading volume of the market is too low.
Here are the situations when traders wait for the prices to hit the resistance level such as –
- They submit order to purchase a huge volume of currency
- When the trading volume of the market is low, such large buying orders may cause market prices to rise above resistance level
- Poor traders will place stop loss a few pips above the resistance level after which they have to exit the trading market
- Since their stop losses are a big hit, the price will start to go up hitting the retail traders
- The institutional traders will sell their currency as everyone will start selling their currency and therefore, the prices are likely to go down
How to avoid stop loss hunting?
There are no specific ways through which you can avoid this situation. However, the only thing you can do to avoid such trading situation is by setting take profit forex on your trade during off-peak times or before inflation. When you come to know about the techniques of stop loss and take profit, you can certainly avoid falling prey to forex stop loss hunting.