The truth about stop loss hunting. For those of you who love a conspiracy theory, what I am about to tell you and expose will disappoint you. “Stop Loss Hunting” is a well known online theory about the acts of brokers and institutions to effect price action so it is about time you know the truth.
The reason we wanted to talk about this subject is because we have recently been asked about this on a number of occasions at some of our recent events – so this evening it is about time to expose the truth.
So what is stop loss hunting?
Stop loss hunting is claimed to be a strategy “used” by institutions and brokers to drive price to a certain level in order to “stop” traders out of the market. To the uneducated trader this could be a possible plausible reason for having losing trades.
Now lets look at this logically and the potential reasons you can find online backing the theory.
The FX Market. The most liquid financial market in the world which in April this year averaged $6.6 trillion traded per day.
Now for a broker to move the price of a certain currency pair how much liquidity will they have to place do you think? Simple answer – A LOT!
Do you think it would be in the interest of an institution to use a large amount of liquidity just to stop retail traders in the market. Let me tell you if JP Morgan, Goldman Sachs et al. wanted to move the market they would do so anyway – I can guarantee not one person at any of these major institutions would be worried where John Smith, with an account of £1000, has placed his stop loss when trading GBP/USD.
Brokers. What benefit would it be for a broker to do this? Brokers spend thousands’ per month trying to attract new clients, if they were to stop loss hunt their clients and cause losses, if the retail traders knew this was happening would they trade and stay with that broker? Another simple answer – NO. Brokers will lose more clients then they will attract and no doubt their ongoing reputation will be damaged.
Why it is only losing traders who make this excuse. This may offend you but the people that moan about stop loss hunting are the traders who are consistently losing. They need an excuse, other than themselves, as to why they are losing trades. Instead of taking ownership of their trading they will look for the easy way out.
Let me ask you this, how many winning traders talk about stop loss hunting?
Fundamentally institutions, brokers, hedge funds etc do not worry about the retail trading market enough to look to stop people out.
As we all know 90% of new traders blow 90% of their account in the first 90 days, with this statistic why would they worry – it is near enough a guarantee retail traders will blow their accounts there is no need for it to be forced or encouraged.
What YOU as a trader should be focusing on is perfecting your strategy, knowing where to place your stop loss (based on your analysis) and how you should be analysing the charts on a day to day basis.
We all love a good conspiracy theory but stop loss hunting is unfortunately just a myth.
To succeed in trading the financial markets you need to take 100% ownership of each and every trade you place.