Read on to find out how you can avoid having your stops hunted, and how you can exploit this phenomenon for a more profitable trading style.
Individual traders frequently express concerns about stop loss hunting and its potential negative impact on their active positions.
Why would financial institutions use this as a strategy? Because it is large trading houses that often require a movement in the market that aligns with their chosen needs and outlooks A trader should not take the sudden gyrations of the Forex market personally, they should use the knowledge that stop loss hunting can and does take place as a way to understand and help them trade later on.By knocking out the large accumulated active positions via stop loss hunting in an asset, the large financial houses then have a freer hand to engage in their own activities.
Financial institutions placing large trades in the cash market know that they might have to hold a position due to a need of particular clients many of whom are not trading for speculative reasons – like corporations. . If the financial houses know where bias exists, they will use numerically analysis to quantify this data to create a small edge and try to decipher where other market participants have vulnerable market positions. The use of stop loss hunting knocks competitors out of the marketplace.
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