Stop Hunting?

[maxr 10]

We read about 'stop hunting' on FX edu sites. To what extent do you think this is the reality of what is happening, and to what extent is it just price overshooting S&R due to other causes, resulting in false breakouts which just happen to catch a lot of stops?

 

Max

[MightyMouse 12]

We read about 'stop hunting' on FX edu sites. To what extent do you think this is the reality of what is happening, and to what extent is it just price overshooting S&R due to other causes, resulting in false breakouts which just happen to catch a lot of stops?

 

Max

 

 

Of course stop hunting happens. A stop on a long position is a willing seller to someone who is short and needs a seller below the current price to buy from at a profit. If they find stops they can cover. If you are a weak long, eg., your stop is really small, then they will find you frequently and you will think its a conspiracy, its your broker, etc. The fact is that your stop on that particular trade was simply too close and the order flow did not reverse in time to save you. Widening your stop will help protect you from getting stopped out because of excess noise, but it will help and hurt almost equally since it opens up the possibility for you to make more mistakes.

[SIUYA 11]

thats why a "plan" for reentering a trade can be important. Rather than curse and moan and swear, adjust the plan to take into consideration maybe

a stop and reverse, or

a dont take the first trade or

only take reversing trades etc; etc

 

Remember the market is not out to get you, it does not care who you are or where your stop is.

[Tams 20]

a friend relayed this story to me:

 

a trader was very upset, because his stop was always picked by the MM,

so he decided to not enter the stop,

but instead keeps it in mind and only send it when the market gets there.

 

guess what? the MM has telepathic power, he even picked the stop this trader had in mind !!!

Edited December 20, 2010 by Tams

[ScottB 10]

Stop hunting is real but the banks are not the ones doing it; it is the leveraged funds or prop traders. I write algorithms for a prop firm. Some of these algorithms look for price/volume patterns that give clues to where stops might be.

 

We don't run the stops, we just wait for someone else to run them, then our algorithm will enter against the stop running. Sure, we get stopped out ourselves sometimes but more often than not, we get in somewhat near the extreme and ride the trade back into the balance area for a small but regular profit.

 

If you are looking for a large profit run, you don't need to be as precise with your entry but you need to have a larger stop; if you are scalping, you need precise entries but can have a tighter stop.

 

In the end, if you had the capital and the technology, what would you do? Whatever your answer is, look for someone to be doing it and plan accordingly.