Hunting Stop Loss

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Hunting Stop Loss

Most market participants (traders and investors) understand that Stop Loss (stops) is very important to survive in forex in the long run. The “wait for exit when profit” strategy does not apply to most forex traders. Trading without using stops in the forex market can cause traders to face forced liquidation in the form of margin call. Indeed there are investors or long-term traders who may trade in cash, they do not use stops. But in fact, most of the forex market players are believed to be speculators who use high leverage.

The use of high leverage and the use of stops that are often used by most traders, this makes the opportunity for forex brokers to hunt stops and this has become a very common practice. Although this may sound negative connotations for traders, hunting stops is a legitimate form of trading. Usually performed by forex brokers.

Since the human mindset naturally seeks regularity, most stops will gather around round numbers ending in “00.” For example, if the EUR / USD pair is trading at 1.2470, most stops will be within one or two points of the price of 1.2500 rather than placing the stops at 1.2517. This can be valuable knowledge, as it clearly shows that most retail traders have to place their stops at unfamiliar and unusual levels.

Of course for retail traders, hunting stops by brokers should be avoided or tricked. Not to avoid the broker you know, because in general the behavior of brokers like that. Also with the specter of hunting stops, retail traders do not use stops. In addition to the value “00”, there is also a value of “55”, “20”, and “80” as the level for hunting stops. Then these levels should be avoided as your level stops.

There is also the idea that these levels as entry level only. So if this level is triggered, then the price will move faster in the desired direction. And put the level stops at an unusual level.

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