Stop loss hunting pdf
Stop loss hunting meaning. Stop loss hunting strategy. Stop loss hunting strategy pdf. Stop loss hunting secrets. Stop loss hunting book pdf. Stop loss hunting - profit unlocked pdf. How to avoid stop loss
hunting.
Let me ask you…Have you ever taken a loss only to see the market reverse back to your intended direction?And you can’t help but feel that “someone” is stop hunting you.It sucks.The world is unfair.The market is rigged.But is that really the case?Or did you put your stop loss at the worst possible level — which makes it easy to get stop hunted?If that
sounds like you, don’t worry.Because in this post, you’ll learn:You ready?Then let’s begin…What is stop hunting and why only losing traders suffer from it?You might wonder:“What is stop hunting?”Well, it’s a term often used by losing traders who got get stopped out of their trades, only to see the market reverse back in their intended
direction.Now…Why do I say losing traders?Because only losing traders blame the market, their broker, the smart money, and everything else — besides themselves.And this is a big problem!If you blame others, it means you’re not taking 100% responsibility.If you don’t take 100% responsibility, you are giving up your power to change.If you give up
the power to change, you’ll never improve for the better.Here’s the deal:You don’t see winning traders complain they are getting stop hunted.Why?Because they take 100% responsibility for their actions!So…The first step to avoid getting stop hunted is to take 100% responsibility — and only then can you become a better trader.Now, let’s move on
and answer a burning question that’s on your mind…Stop hunting: Does your broker hunt your stop loss?You might be wondering:Is there actually a stop loss hunting tactic that brokers use?Most regulated brokers don’t hunt your stop loss because it’s not worth the risk.Why?Think about this:If the word gets out that ABC broker hunts their client
stops loss, it’s only a matter of time before existing clients pull out of their account and join a new broker.If you are a broker, would you want to risk doing that over a few measly pips?I guess not.Most brokers don’t hunt your stops as the risk far outweighs the reward.Now, you are probably thinking…“But my broker widens the spread and stops me
out of my trade.”There is a reason for this. Let me explain…A broker widens their spreads during major news release because the futures market (which they hedge their positions in) has low liquidity during this period.If you look at the depth of market (aka the order flow), you’ll notice the bids and offers are thin just before major news release (like
NFP) because the “players” in the market are pulling out their orders ahead of the news release.Thus, you get thin liquidity during such period which results in a wider spread.And because of this, the spreads in spot forex is widened (because if it isn’t, there will be arbitraging opportunities).So, it’s not that your broker is widening their spread for
fun, but they are doing it to protect themselves. But it’s commonly misunderstood as brokers doing stop hunt in forex.The bottom line is this…Most brokers do not employ stop loss hunting because it’s bad for business in the long run. And they widen the spreads during major news release because the futures market is thin during this period.How the
smart money hunts your stop lossHere’s the thing:The market is to facilitate transactions between buyers and sellers. The more efficient buyers and sellers transact, the more efficient the market will be, which leads to greater liquidity (the ease of which buying/selling can occur without moving the markets).If you are a retail trader, liquidity is hardly
an issue for you since your size is small. But for an institution, liquidity becomes the main concern.Imagine this:You manage a hedge fund and you want to buy 1 million shares of ABC stock.
You know Support is at $100 and ABC stock is trading at $110. If you were to enter the market you will likely push the price higher and get filled at an average price of $115. That’s $5 higher than the current price.So what do you do?Well, you know $100 is an area of Support, and chances are, there will be a cluster of stop-loss underneath (from
traders who are long ABC stock).So, if you can push price lower to trigger these stops, there will be a flood of sell orders hitting the market (as traders who are long will exit their losing position).With the amount of selling pressure coming in, you could buy your 1 million shares of ABC stock from these traders. This gives you a better entry price,
instead of hitting the market and suffer a slippage of $5.In other words, if an institution wants to long the markets with minimal slippage, they tend to place a sell order to trigger nearby stop losses.This allows them to buy from traders cutting their losses, which offers them a more favorable entry price. Go look at your charts and you’ll often see the
market taking out the lows of Support, only to trade higher subsequently.An example:Now, let’s move on to something really important…How to avoid stop hunting by setting a proper stop lossHere’s the deal:There’s no way to avoid stop hunting completely because that’s like saying “how do I avoid losses entirely?”It’s impossible.The market goes
where it wants to go and all you can do is participate in the move and cut your loss when you’re wrong.Still, how to avoid stop loss hunting then?You want to set a proper stop loss so you don’t get stopped out “too early”.Here are 3 techniques you can use:Don’t place your stop loss just below Support (or above Resistance)Don’t place your stop loss at
an arbitrary levelSet your stop loss at a level where it invalidates your trading setupLet me explain…1. Don’t place your stop loss just below Support (or above Resistance)Now it’s clear to you that setting your stop loss just below Support (or above Resistance) is a bad idea.Why?Because that’s where most traders place their stop loss.And this
incentivizes the smart money to push the price to that area as it offers them better entries & exits on their trades.You’re probably wondering:“So, how should I set my stop loss?”You should set your stop loss a distance away from Support/Resistance.For example: You can use the Average True Range (ATR) indicator to decide how much “buffer” you
want to give.It can be 1 ATR, 2 ATR, or even 3 ATR away from Support & Resistance area.If you want to learn how to use the ATR indicator to set your stop loss, then go watch this video below… You're Reading a Free Preview Pages 7 to 10 are not shown in this preview. You're Reading a Free Preview Pages 14 to 22 are not shown in this preview.
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What is Stop-Loss Hunting? Stop loss hunting (or “stop hunting” for short) is a type of trading strategy that aims to profit by deliberately triggering other traders’ stop losses. Certainly, this is something that you should watch out for; but is it something that you can also attempt, given the right strategy? Here’s how it works: Trader A buys an asset at
$12 and places a stop-loss at $10. Trader B suspects that this is what another trader (Trader A) is doing and seeks to exploit it.
So, Trader B places a sell stop around $10.
If the market goes in Trader B’s directions, it then hits the $10 level and Trader A’s stop loss (along with those of others who placed a stop at that level) gets triggered, causing prices to rapidly fall below $10. Trader B takes the position and then quickly closes the position at a profit. Is Stop Hunting Unethical? Some traders view it as unethical or
predatory. When large institutions are engaging in this activity, certain regulatory bodies (like the CFTC) have rules in place to prohibit it.
When institutional traders place trades, they often have ample capital to move or manipulate markets. Not so with small retail traders. The fact remains that certain market levels may be bunching-up stop-loss orders, and these levels may present opportunities. Unlike the institutional trader, you wouldn’t be moving markets. Instead, you’d be taking
advantage of the flow of the market should a large amount of stop-losses be triggered by market movements.
How Do You Hunt for Stop-Losses? The concept behind stop hunting is pretty simple. Here are four general ways traders may attempt it: Key Technical Levels: Attempt to figure out where stop-losses may be concentrated based on support and resistance or key chart pattern levels. Order Flow: Look at order volume to determine where stops may be
concentrated. Large orders indicate the possibility of large stop-loss accumulation. Depth of Market Data (DOM): For ultra short-term trades, DOM can help you figure where stop losses are likely accumulating (most platforms offer DOM data). Sentiment and News Analysis: For stop concentrations among investors, monitor the news and any marketmoving economic release. If a news release garners significant response from the markets, try to determine where these larger investors are placing their stop-losses. Is Stop Hunting Risky? Yes, it can certainly be very risky, especially if you’re trading large positions to try to make significant returns on a few ticks or points. Plus, you’re trying to
predict market behavior; a very difficult task. But if you are interested in stop hunting, we’ll present a few strategies to hunt for stop losses as well as strategies to protect yourself from other stop hunters. Stop Hunting with the Pros Stop hunting is a technique adopted by strong investment players to remove the weak players from the market by
pushing the price of an asset to such a level where the majority of the players have placed their stop loss. Most retail traders become discouraged by this, who are forced out of their positions, only to see the market reverse and trend in the direction they had initially analyzed. Strong players such as hedge funds, institutions, etc. need liquidity in
order to efficiently get in and get out of the market, so they routinely scan the market for areas of liquidity to get their order filled.
These strong players are very familiar with areas such as support and resistance, chart patterns, or the ill-advised level of 10% from the entry price. Whereas, strong players in combination may temporarily move the markets in an attempt to find the needed liquidity. Figure 1.1 Micro E Mini S&P 500 Index Futures 5 Min Chart of 10th January 2023
For example, if we observe the Micro E Mini S&P 500 chart, we see that prices took support between $3904.50 and $3906.50 a couple of times. Traders might go long and place a stop below the support level around $3904 – $3900. After a few bars of trading activity, prices rallied and retraced back to its support level of 3904.5. Following this,
another group of traders go long and place their stop loss orders in the same $3904 – $3900 price zone. These strong players enter the market and push the price down below 3900 level triggering all the stop loss orders. This forces many retail and individual traders out of the market, and the strong players who were having a short position would
now buy back the asset, which would result in a buying pressure on the asset. The market finally rallies in the direction the trader originally anticipated. What are some tips to take advantage of Stop-Hunting? TIP ONE: Mean Reversion Strategy Look for support and resistance levels within a defined trading range. Wait for the breakout below the
support level or above the resistance level. Once the breakout happens look for a reversal candle, which brings the price back in the trading range. Enter into a sell trade when the following candle closes below the reversal candle, and enter a buy trade if the following candle closes above the reversal candle [See numbered arrows below] Place the
stop loss above the reversal candle high. The target is placed at the opposite side of the range. Figure 1.1 Micro E Mini Dow Jones Industrial Average Index Futures hourly chart 23rd December 2022 to 8th January 2023 In the above figure, points no. 4 and 5 are at resistance level. Point no. 5 is at a support level indicating stop hunting. Prices broke
the support and resistance levels and are seen to reverse back in the trading range. Point no. 7 is at the resistance level, also indicating stop hunting, but the candle that followed after the reversal candle did not make a lower low, so the trade never materialized. TIP TWO: Contrarian Approach It is a learned behavior that prices would turn back up
from support levels and turn back down from resistance levels. So instead of going with the crowd, doing the opposite will help a trader follow smart money and in the process may be profitable, where most traders stop losses that are bound to be triggered. By building a framework for joining the strong players, a trader can take advantage of these
moves and be on the right side of the market. Now let’s look at stop hunting from the opposite side—those who hold stops that are “hunted.” Protecting Your Position From Stop Hunters Set your stop loss at a level where it invalidates your trading setup. Whenever a trade is entered it is probably based on a technical pattern like breakout, triangles,
channels etc. So it would make sense if a stop loss is placed at a level where the technical pattern is invalidated. For instance if you are trading a breakout, then your stop loss should be at a level where if the price reaches it, the breakout has failed. This will ensure that you are not stopped out too early. Use of ATR when placing stop losses Let us
revisit the earlier example – instead of keeping the stop loss a few points away from the support level, one can use the ATR to define how far below the stop loss should be placed so that your trade has enough room to breathe. Based on the volatility in the market one can change the multiplier to 2 times ATR or even 3 times ATR and calculate the
position sizing thereafter. There is no way to avoid stop hunting completely because that would be like saying, “how to avoid losses entirely”. That is impossible. The market will go where it wants to go and all you can do is to participate in the move and cut your losses when you are wrong. The Bottom Line It’s tricky to avoid stop hunters, but the
burden of difficulty lies with the stop hunter. Hunting for stops isn’t the easiest thing to pull off. But when you see critical levels that appear ideal for a large concentration of stops, its tradability may be worthwhile. Just proceed with caution so as to not get too wounded by your financial prey.
Please be aware that the content of this blog is based upon the opinions and research of GFF Brokers and its staff and should not be treated as trade recommendations. There is a substantial risk of loss in trading futures, options and forex. Past performance is not necessarily indicative of future results. Be advised that there are instances in which
stop losses may not trigger. In cases where the market is illiquid–either no buyers or no sellers–or in cases of electronic disruptions, stop losses can fail. And although stop losses can be considered a risk management (loss management) strategy, their function can never be completely guaranteed. Disclaimer Regarding Hypothetical Performance
Results: HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP
DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM. ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN
ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF
TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE
PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS. Don't let a single bad day ruin your entire month. When you're day trading, you're going to have bad days where everything seems to go wrong. Successful traders know how to handle such days and know
when to quit—they set and abide by a daily stop-loss.
There's always another day, and it's best to preserve capital when things aren't going well. That way, you have money to trade when things are going well. A daily stop loss is an amount you are willing to lose in one day before you stop trading for that day.A daily stop loss is not an automatic setting like a stop loss you set on a trade; you have to make
yourself stop at the amount you set.A good daily stop loss is 3% of your capital, or whatever the average of your profitable days is. The day trading daily stop-loss is the amount of money you allow yourself to lose in a day before you call it quits (for that day). This is different than a stop-loss order, which controls the risk of an individual trade. The daily
stop-loss forces you to realize that today likely isn't your day, and preserving your capital for another day is the best option. Once losses start to mount, it can become very tough to stay focused and not get into "revenge trading" mode, which typically results in even bigger losses.
Revenge trading, or a "risk spike," is when you abandon your trading rules in favor of trying to gamble your way to a quick profit—a very bad decision. Set your daily stop-loss every day, and write it down before you begin trading. Depending on the method chosen for determining your daily stop-loss, it may fluctuate. If you are new to trading and
don't have a track record, your daily stop will need to be based on losing trades in a row or a loss percentage. Using both methods is ideal because it helps you establish a baseline and the habit of setting a daily stop loss.
If you lose 3% of your account in one day, stop trading. Also, if you lose three trades in the row (you may alter this number to suit your trading style), consider stopping for the day or at least taking a 10+ minute break if you're frustrated (trading when frustrated tends to lead to revenge trading). The 3% rule is your maximum loss for the day; reduce
this amount if you wish, but try never to lose more than 3% in a day. If you have a day trading track record, use the dollar amount of your average profitable day to find your daily stop loss. For example, add up your profits on all days you were profitable in the last month, and then divide by the number of profitable days. For example, if your average
profitable day is $500, then use this as the daily stop-loss. This is a good method because it makes sure that you can easily recoup any losses with a positive day.
You can also add a buffer to this loss level. You could set this at any number, such as 25% or 50%. The buffer adds additional loss-recuperation time. For instance, if your average profitable day is $500, your daily stop-loss with a 50% buffer (half of your profitable trading day) would be $750. A 25% buffer would be one-quarter of your profitable
trading day, and so on.
You can set the buffer for however long you want your recoup time to be, So, if you hit your daily stop-loss (lose $750 or more), it will take about a day and a half of profitable trading to recoup the losses. If you are a relatively consistent trader, this added buffer gives you more room to make back some money during the day without forcing you to quit
trading. If you're reaching your daily stop loss more than a few times a month, you should stop trading and see how you can adjust your strategy. However, a word of caution is in order—you must establish this in advance. If you set your stop loss at $500, keep it until the next day. If you get in the habit of adjusting your daily stop loss on the fly, you're
likely to end up losing too much. When you hit your established limit, stop trading. No matter which daily stop method you choose, reaching your daily stop level shouldn't be a common occurrence. Reaching it once or twice or month is manageable, but if you are reaching it more often than that, your method may need refining. You might need to
reduce the risk on each trade, adjust your strategy for current market conditions, or find another market to trade in. If you are new to trading, choose a percentage of 3% or less of your account value. Write this percentage down in your trading plan, then each day, determine what your stop-loss (in dollars) is for that day. If your closed or open
position losses exceed this dollar amount, close all day trades, cancel all day trading orders, and stop trading for the day. If you're an experienced trader with a track record, you can use the dollar amount of your average profitable day over a 30 day rolling period as your daily stop-loss. Write this dollar amount down each day; if closed or open
position losses exceed this amount, then close all day trades, cancel day trading orders and stop trading for the day. The daily stop-loss serves to protect you from taking a massive loss on a single day, which could potentially ruin an entire month of trading. Even worse, it could significantly deplete your trading account. You can apply these daily stoploss guidelines to forex day trading, stock day trading, or day trading other markets. Thanks for your feedback!