Now we continue with another important topic the stophunt.
Do you wonder what exactly a stophunt is?
”Stop hunting is a strategy that attempts to force some market participants out of their positions by driving the price of an asset to a level where many individuals have chosen to set their stop-loss orders. The triggering of many stop losses generally leads to high volatility and can present a unique opportunity for investors who seek to trade in this environment.”
The reason trading with price action can be profitable is because whilst the Forex market is random, the humans who trade it are not. The traders who participate in the market often operate out of habit to show the same trades and many people take the same trades out of habit and because they learned that way.
And it is these habits that create the same outcome over and over again.
That is also the reason that you see the same patterns coming back again and again in the market.
So what can you do to step into a stop hunt as little as possible?
Stop entering when the pro’s are taking profit!!!
The chart below shows a very common pattern in the Forex market. Take a moment to study this chart and note the point differences of where the professional enters and where the retail trader enters. On the left you will notice the retail trader buys and takes a long trade when price is at an extreme high.
Soon after this the retail trader is stopped out as price moves lower from this high. At around the same time the retail trader is stopped out, the professional traders are entering the market in trades to get long. When price moves higher the professional trader will cover their long trades and start taking profit.
They professional traders will begin to leave the market after making solid profits. At the same time, the professional traders are leaving the market, the retail traders are starting to get long again.
The obvious difference in this image above is from where each trader enters their buy trades. Whilst the professional trader waits for price to retrace back lower, the retail trader buys from the extreme high.
The image above highlights why entering trades at extreme highs or lows without any retracement can be super dangerous. When traders enter from these areas that are at extreme highs or lows, the big guys are taking profit and leaving the market. Whilst the big guys are leaving and taking all their money out of the market, the retail traders are getting in.
Obviously getting into the market when the big guys are getting out is not a smart plan.
But how can you best prevent this? I’ll show you now in the charts below. It is best to always wait for the retest and not immediately step into a first “Break”.
I have tried to explain to you in this pdf as much as possible about the dangers of market manipulation or the “Fake Outs” take advantage of this and try to pay close attention when you enter a trade!
Not everything you can always expect in advance but always keep your losses smaller than your profit.
And take tighter losses and greater profits.
Stay focused and continue to learn from your mistakes.
Analyze your mistakes and you’ll be a better trader step by step!