Stop loss hunting has recently become quite controversial in the forex world. Some say it’s real and offers traders the opportunity to increase their profits, others say it’s fake, but some don’t even know what stop loss hunting means in the first place.
This article aims to clear up any confusion about stop loss hunting and give you a better idea of whether or not it’s worth using as part of your trading strategy.
Is stop-loss hunting real?
Yes, it’s a real but tricky practice of triggering the stop loss of retail traders. It is done by major financial institutions, stockholders, and brokers. The victims are obviously retail traders.
The traders of the major financial institutions have in-depth insight into retail traders’ psychology. They can predict easily when they will put stop loss. They know th limits set by traders quite often for psychological stop loss. Some major institutional traders can even see the stop loss of retail traders from Level II windows or order books.
How Does Stop Loss Hunting Occurs: Example
The big institutional traders are culprits of this type of stop-loss hunting. For example, a stock is trading from, 100 to 95. Many traders want to buy it from 95.8, 95.9,96 or etc. They have set stop orders at 100.
What do the hunters do? they will lower the price of the stock from 95 in order to trigger the stop orders of most of the buyers. They do this by introducing a large number of sellers. In crypto, you can call it pump and dump. To cope with this almost all the traders will trigger the stop loss. This action will impact the demand for shares. This in turn results in too many sell orders. It can also be applied to sell orders.
Stop Loss Hunting as Trading Strategy
Stop loss hunting is a trading strategy that has been both praised and criticized. The main criticism of stop-loss hunting is that it can be very risky and may result in losing more than you could have made if you had stayed with your original trades.
Many traders use stop-loss hunting as an exit strategy to exit their positions when they get into a drawdown. They will generally wait for a few days or even weeks before selling the trade back at a better price, sometimes even higher than the original entry price. While this sounds like a good idea, this approach has two major problems.
Disadvantages Of this strategy
First, if there are no stops in place and you just hold on to your position until it recovers, then you will likely end up losing more than you would have if you had simply let go of the trade and waited for it to recover on its own.
The second problem is that stop-loss hunting can actually backfire if you don’t know what your winning trade looks like but want to sell in order to lock in profits or meet other financial goals (such as saving for retirement).
Advantages of this Strategy
Traders can make a profit with a stop-loss hunting strategy. This is especially helpful if you’re entering new markets or volatile trading assets. Setting stops near your entry and exit points, you help to minimize losses while still enjoying the potential for profitable trades. Additionally, you are less likely to panic and sell when conditions turn rough by not letting losses build up over time.
Does Stop Loss Hunting Really Exist
Stop loss hunting is when you sell your shares at a price that’s lower than where you bought them. If the stock goes down after you sell, it means there’s no more profit to be made and you can go short again.
Stop loss hunting exists because it’s hard to know which stocks will keep going up and which ones will fall apart. So the best traders try to find those stocks that have already fallen far enough and buy them back at a cheaper price.
This way they make money while they wait for the next big fall in the stock price. The theory behind stop loss hunting is that if a stock trades below a set point, then there’s an opportunity to buy more shares and reap a larger profit. Stop loss hunting works by using automated trading software to place limited orders ahead of time at prices below the current market price.
These limit orders are placed when the stock is near its target price, which happens when it moves closer to its P/E multiple or earnings multiples (or some other level). However, when stocks get too overbought or undersold, they can crash back down and cause losses for those who had stopped loss limits set too high.
It’s not always possible to predict whether a stock will go up or down in the future, but with enough research and practice, traders can learn how to spot patterns in recent share prices and use them as indicators for predicting future movements of a particular stock or portfolio of stocks.
Is Stop Loss Hunting Legal
Stop loss hunting is legal in the United States, but there are risks involved.
For example, you may lose money if the stock price of your investment drops below the stop loss price. If your trade was at $100 when the stock dropped to $95, for example, then you would be out of pocket by $5. That’s because you’ve lost 5 percent of your investment due to the stop loss and commissions at $5 per share.
The problem with stop-loss hunting is that it can lead to stress and anxiety over small losses and big wins.
Stop loss hunting can be addictive and risky. It can also backfire if the broker who set the stop loss isn’t accurate with their prediction or doesn’t have enough capital behind their position to cover it if it goes wrong.
How to Avoid Stop Loss Hunting in 2 easy steps
The first step in starting stop loss hunting is to set a stop loss order for your position
You can start a stop loss hunting by entering the market and buy at a level that is below the highest price recorded in the last 24 hours.
The first step to stopping loss hunting is determining your risk tolerance.
Determine your risk tolerance by identifying the level of volatility that you are comfortable with, and then compare that with the potential profit. If the potential profit exceeds your comfort level, you can consider starting stop loss hunting.
The next step is to determine how long it will take you to capture the profit from your trade.
How to Protect your Trade from Stop Loss Hunting
There are a few things that you can do in order to protect your stop loss order from being hunted.
One simplest technique is placing it on an automated trading bot or program. This will ensure that the order is executed at pre-determined conditions, whether it be when the market reaches a specific price or volume threshold.
Secondly, set up your stops such that other traders will not easily see them. Place them above or below the current price, depending on whether you have a long or short position.
Finally, always keep track of which exchanges your orders are placed on and make sure to cancel them if they move out of position too far. Also consider placing them on different exchanges so that if one exchange does have a sudden move, then you still have some protection at another exchange that might not experience the same move for some time.
What exactly is stop loss hunting
Stop loss hunting is a practice that involves the intentional selling of an asset when its price breaks out of a buy point and then reversing the order at no loss to break that buy point again. This can be done on stocks, futures contracts, and forex pairs. Because it’s a trading strategy where a trader takes advantage of a special situation, it has been criticized for being reckless and dangerous.
Can you make a profit with this strategy?
Yes, you can make a profit with a stop-loss hunting strategy. However, it is important to be aware of the risks involved and understand how stock markets work. You also need to have an understanding of what your goals are for hunting stocks and setting stops.
The purpose of using a stop-loss strategy is to protect your investment by limiting losses when prices move in the wrong direction. When set correctly, stops will help you maintain control over your portfolio while still being able to take advantage of opportunities that arise throughout the market cycle.
The short answer is: Yes, stop loss hunting is real. But the long answer is, it’s a lot more complicated than that.
There are a variety of different tactics employed by various groups of traders, and they all likely work differently under different market conditions. Some even consider what they do to be a form of stop-loss hunting, while others don’t.
The bottom line is that there isn’t a clear consensus within the trading community about what we should call this sort of activity, so it’s probably best to try not to anthropomorphize it too much.
Don’t think of this as people out there intentionally trying to hurt your portfolio, destroy your account, or something like that. Remember that there are human beings on the other side of an order being placed—even if the outcome may seem unpredictable and random from our side of things.