Stop loss hunter, shocking facts about stop loss hunters
Stop-loss hunters. What does that mean In forex trading? All traders must know about the stop-loss feature, where traders can take advantage of this feature to manage trading risk.
With a simple example. If a trader opens Buy at a price of 10 and puts a stop loss at a price of 5, It’s, means that if it turns out that after you open Buy at the price of 10 then the price actually goes down. If the price has hit 5 then the position will automatically be closed with the amount of loss minus 5.
But what happens if it turns out that the broker you choose uses stop loss hunter software? You will probably get your position closed with minus 5. But after you research the actual price has not hit at number 5, let say the price drops only to number 8, but your stop loss has liquidated.
If that happens, the trader will lose, because the position should still be active but because of the stop loss of the hunters, the position is closed by the broker.
This topic becomes serious among traders because brokers are suspected of manipulating prices so that chart changes become abnormal. You can look for comparisons with charts on other brokers of ECN type for more honest pricing conditions.
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Stop Loss Hunter definition
A stop-loss hunter is a particular software or algorithm that a broker uses to capture stop losses so that they are easy to hit even though normal prices have not been hit.
In this condition the trader becomes a victim because the stop loss should not be touched, and the broker is benefited, usually the broker is a dealing desk broker.
Examples of cases stop loss hunter is as follows below
Incident cases 1:
Trader John opened a buy position for EUR/USD at the price of 1.3150 and placed a stop loss of 50 pips from the entry point at the level price of 1.3100. But John watching the price drops to 1.3105, and then John’s position is suddenly closed by a stop loss.
Because felt curious then he does searching, it turns out that at that time the spread widened to touch its stop-loss target. This incident did not occur once or twice, causing a huge loss to John’s account even though he had implemented risk management.
Incident cases 2:
John opened a buy order for EUR/USD at 1.3150. In considering stop loss, it makes support from the psychological level of 1.3100 as a reference.
Shortly after he opened a position, the price turned down and broke through support. John’s transaction also loses 50 pips because the price has touched the stop loss. However, the price break did not last long (false break).
After reaching the level of 1.3095, the price rose again to exceed John’s entry-level. If it’s not hit by a stop loss, Amin’s buy position can definitely end profit. Just like the previous example, this event has happened several times.
In the first example incident cases 1 is an example stop loss hunter and trader become of a victim broker that uses any software stop loss hunters.
You need to know, only brokers will get profit from the losses of traders and are suspected of use hunting stop loss. Usually, brokers that use stop-loss hunters software is the type of market maker and the company is not clearly registered.
Regulated brokers will actually lose if they hunt for stop-loss because this is an illegal act that can get them sanctioned and lose many clients.
On the other hand, in the second example incident cases 2 are often considered to originate from a trader mistake in placing a stop loss. That is true, but the high frequency of false break can actually be caused by stop-loss hunters from other ‘groups’.
To reveal the details further, see the shocking facts about the following stop-loss hunters.
Brokers are not the only ‘suspects’ of Stop Loss Hunter
When talking about stop-loss hunters, many lay traders immediately accuse dealer broker as the main suspect. Even though this is true, but actually there are other actors who often miss the attention. This failure to recognize other suspects actually caused many traders to experience incidents 2.
The actors we are talking about here are the big players. How can? The principle can be traced from the relationship between buyers and sellers in the forex market. When you want to buy currency above the support level, where do you do it if not from a seller?
Well, to lure amateur traders to sell at the support level, they are willing to ‘move the price’ a little below support, then open a large volume buy to push the price back up. Big players usually transact as institutional traders who have enough big money to create such movements.
They also have qualified expertise so that they can predict traders’ favorite stop-loss levels. However, stop loss placement recommendations in almost all sources and methods of learning forex are usually not far from these 5 things:
- Round or psychological level.
- The nearest high or low price.
- Fibonacci and Pivot Point levels.
- Moving Average with the most widely used period (MA 10, 20, 50, 100, or 200).
- The level of the meeting of all the elements above.
Manual way Not a Solution to Overcome Stop Loss Hunter
The first fact has concluded that stop-loss hunter is often eyeing general levels which are the benchmark for retail traders. If so, should exit trading be done manually and not using the stop loss?
The answer depends on your ability as a trader. If you have a pro and can close the manual position with a cold head, then, please. But if you are still often affected by trading emotions when taking action, then this method can actually speed up your losses.
As a solution, you can anticipate of stop-loss hunters by giving a distance of a few pips from the targeted key level.
In the example of trading, for example, choosing around a level of 1.3100 as a stop loss is an unwise action because it is probable that the stop loss hunters will act in that area. To anticipate it, it is better to loosen the stop loss in the area of 1.3092, 10394, and the like.
In addition, it would be better if you choose to base stop loss from risk management rules.
For example, if you have a risk tolerance limit of 30 pips for each position, then just use the guidelines to determine to stop loss.
Rules like this are quite impossible to predict stop loss hunters because the risk management of each trader is different, unlike the relative price movement reference on all trader charts. All the elements above.
Stop Loss Hunter Action Can Be Seen From Price Action
Reflecting on the situation that often happens, the act of stop-loss hunters can actually be identified as a false break on the chart. This condition is usually characterized by price movements that seem to penetrate an important level and initiate a breakout.
Because the chances of a breakout are quite large, many traders are fooled by false breaks like this. Even if they learn how to confirm the breakout.
The loss of a false break can be minimized. Well, one of the recommended methods is to wait for price action confirmation. When the market is filled with uncertainty, the price will form a candle with a long axis over its body.
If this candle axis penetrates an important level, then do not immediately assume it is a breakout signal. We recommend that you wait until the next candle is closed outside the support or resistance level for further confirmation.
Also, note whether the candle type is bullish or bearish. A break of the price from the support will be confirmed if continued with a bullish candle, and vice versa if the price breaks out of resistance.
What Are the Tips for Avoiding Stop Loss Hunter?
From the various reviews above, it can be concluded that retail traders (especially those who are still beginners) must be very careful not to become victims of stop-loss hunters. Starting from the stage of choosing a broker to plan a trading position, here it is complete tips to protect yourself from stop-loss hunters:
- *Choose the broker carefully. Try your best to avoid dealer brokers, as well as see the broker’s experience and regulations to determine its credibility.
- *Make a trading journal so you can evaluate the results of the transaction. This can indicate whether your loss only comes from your own fault or caused by a stop loss hunter. In addition, you can also recognize which party likes to hunt down your stop loss trading, whether a broker or a big player.
- *Avoid placing stop-loss right at common key levels (psychological level, pivot point, Fibonacci, high or low level, etc.).
- *Reduce trading in high-impact news release moments. If you still have a floating position at such a time, adjust the stop loss with the latest level of volatility.
- *Beware of false breaks by waiting for further confirmation. Do not rush to make a decision when the price action signal shows market uncertainty.
- *Always use more than one trading signal to make important decisions.
- *Increase trading discipline and control your emotions. In the stop-loss hunters, the big players not only use their knowledge of key levels that traders commonly use, but also the bad habits of novice traders who are still often influenced by fear and greed.
This stop-loss hunter is already very popular with traders, some traders have shared their experiences through community forums.
Because this is an action that gives a market maker broker advantage and harms the client or customer.
Therefore it is very important for traders to choose which broker does not cheat traders. To obtain trader information in reading user reviews on brokers in their reviews.
By reading the user statement at least get information that can be used when a beginner trader chooses a broker.