How ‘stop hunting’ actually works in forex
Introduction
These days, many traders are generally aware of the phenomenon of “stop hunts” in the currency markets. However, the actual understanding of most traders regarding the subject is often limited or incomplete.
I hope that this article will help you to understand various aspects of stop-loss hunting that have never been revealed before and that you will be able to avoid falling victim to this type of price manipulation in the future.
In this context, I would like to draw your attention to two market mechanisms, which I refer to as the “pre-run counter principle” and the “time and range principle.”
Accordingly, we will take a closer look at the phenomenon of ‘stop hunts’ and I will demonstrate various principles mentioned by using real-life examples. The charts shown were taken from the so-called “MK Web” (further information about this professional tool can be found on this website).
I hope that the following explanation of terms will facilitate a deeper examination of the topic.
Explanation of terms
MK = Market causality
SM = Smart money (also SM algorithms or SM algos)
DM = Dumb money (also DM traders)
PB = DM position bar (a collection of DM positions in the market)
MTS = Medium-term stop (displayed as horizontal green lines in MK Web)
LTS = Long-term stop (displayed as pink lines in MK Web)
STS = Short-term stops (these are displayed as blue/turquoise lines in MK Web)
MK Web Tool = A web-based analysis tool for the Forex markets (www.sme-fx.com)
Stop hunting
The phenomenon of ‘stop hunting’ in the currency markets has become something of an “open secret.” However, many traders view the issue from a very one-dimensional perspective. Let us therefore analyze the phenomenon in a more structured manner, first by looking at a “naked” price chart and then by incorporating the actual market structure.
General mechanics
In a sense, a stop hunt represents the “final step” in the activities of the “smart money algorithms”; it is like a duel that ultimately leads to a final attack by the winning party. The same is true in the Forex markets; the actual stop hunt is the “final move” of the SM algorithms. The price zone where the stops of “dumb money” traders have previously accumulated is cleared by a corresponding price movement. As a consequence, DM traders have to realize their losses and are thus forced out of the market, while the Smart money is placed on the winning side and thus reaps profits.
Stops often accumulate above “obvious” highs or below corresponding lows. Here we can see a corresponding example:
Image 1: EUR/USD on a 1-hour chart (from March 20, 2025)
Source: MT4
We can already see from the “naked” price chart in Figure 1 that there is indeed a visible tendency for the SM Algos to “clean up” stops at significant highs and lows. The boxes shown indicate price zones where stops accumulate and which consequently become targets. In fact, SM algorithms continuously search for these price zones in order to clear these. It should be understood that this very “general” insight is, of course, not a sufficient basis for an implementable trading strategy. In order to actually trade these “visible” phenomena profitably, a deeper understanding and the use of appropriate analysis tools are required.
Furthermore, it is already apparent that, on average, a large number of “counter-movements” are carried out before each actual stop hunt; thus, the SM algorithms ensure that only a few DM traders are correctly positioned and, at the same time, that the stops of the targeted DM traders accumulate as an attractive target. We will now take a closer look at these particular aspects.
The Forex market and its causality
Now that we have looked at the phenomenon of stop hunting in general terms, it is time to go a little deeper. I would first like to explain two specific topics, namely the “counter-movement principle” and then the “time and consolidation principle.”
“Pre-Run Counter Principle”
The “pre-run counter principle” states that in the vast majority of cases, a large number of price movements “away from the target stop” is carried out before the SM Algos finally strike and clear the main target (the actual stop zone). This approach allows Smart money to avoid taking any (or at least not too many) DM traders along on the “stop hunt journey.” But there are other advantages for the Smart money:
1. Traders who were “correctly positioned” before the stop hunt are forced out of the market by the counter-movements even before the stop hunt.
2. Traders who tried to trade with a tight stop (to achieve a good risk-reward ratio) are fished out of the market.
3. DM sellers often move their stops closer to the price, and the target stops “move closer together,” becoming an even better/easier target.
4. DM traders and systems are misled because they expect a breakout in the opposite direction, only to become part of the target themselves (they fall victim to a so-called “fake-out”).
It is now easier to understand how SM algorithms manage to cause DM traders to lose overall as a collective, regardless of whether DM traders bought or sold.
“Time and Range Principle”
The “Time and Range Principle” states that SM algorithms are not in a hurry. For many traders, this point is counterintuitive; they think that the algorithms would strike as soon as there is a clear target. However, this is not the case. On the contrary, the longer the algorithms wait to actually execute a stop hunt, the more they ultimately lead dumb money to losses:
1. We often observe that the targeted dumb money moves its stops even closer to the price.
2. We often see that traders who were originally positioned “correctly” become uncertain due to the sideways market and then leave the market after all.
3. It is often the case that additional traders enter the market and also place their stops at the actual target.
4. Human traders are often worn down by an “8-hour sideways market” (as night falls).
5. Ultimately, the next economic data (e.g., US GDP, unemployment, etc.) will be released, which can then be used by the SM to carry out the stop hunt as planned (with “suitable” economic results, this is then often done in an exaggerated form).
SM algorithms tend to “stretch the range” to the maximum, partly to ensure that DM traders cannot remain in or enter the market with a favorable risk-reward ratio. ‘Obvious’ price targets are covered, similar to the computer game “Pacman.”
Understanding these two aspects allows us to comprehend an important market reality in Forex.
Background: The interaction of DM positions & DM stops
I would now like to go one step further and explain why SM algorithms apply the pre-run counter principle and the time and consolidation principle on a daily basis.
As far as I know, the following topic can only be found in my published work; however, it is a very fundamental and important aspect of the Forex market. Namely, it is about the fact that SM algorithms do indeed fish the respective stop accumulations out of the market. BUT; they always do so taking into account the existing DM positions that are in the market at the respective point in time. Thus, it would never be sufficient to focus solely on stops, as they are only one part of the market mosaic. It is like a river; the water flows around stones. I would now like to explain this point in more detail, as it is a fundamental reality that very few traders truly understand.
Let’s say there is a clear stop zone above the price, which could soon become the target.
Scenario 1: DM buyers are “in the way”
However, if there are too many DM buyers in the market (i.e., accumulated position bars; these are displayed as green PBs in MK Web), then the SM algorithms will NOT simply move the market upward. On the contrary, they will now do “everything” to shake off the DM buyers. Yes, the SM algorithms will apply the time and consolidation principle as explained above, as well as the counter-movement principle.
Once enough counter-movements have been carried out and the actual stop hunt has been sufficiently delayed, we will see how the DM buyers have reduced or even closed their positions (at least as a collective) in response. Once the DM buyers have been sufficiently “thinned out,” the SM algorithms then carry out the actual “main stop hunt” upwards.
Scenario 2: DM sellers enter/are in the market
Let us assume that we do not have any DM buy positions in the market, but instead we have DM sell positions (these are displayed as red PBs in MK Web), then these accelerate the main stop hunt. In this case, the SM algorithms may exploit the “time” factor somewhat, but then quickly push the price to the main stop zone. Because “more fish have taken the bait.” In this case, the SM algorithms have little interest in executing a long sideways market or very pronounced counter-movements, because the victims are already “in the trap.”
Example
In the first screenshot, we see the EUR/USD (H1 chart) from January 13, 2025. Above the price, there is a cluster of stops (“medium-term stops,” green horizontal line).
As we can see from the first histogram, DM sellers are now entering the market (red bars, also called “DM position bars”).
So here we have a scenario where the main target is above the price and additional DM sellers are also entering the market.
This selling activity on the dumb money side causes the SM algorithms to target and fish out the above stop accumulation.
The result can be seen in the second screenshot (Figure 3). One could also say that the new DM sellers have “fueled” the upward price movement toward the main target, because the SM algorithms are ‘fighting’ the new DM sellers, but “hunting” the large stop accumulation (MTS) of the older DM sellers.
It is also very easy to see how the DM buyers who entered the market on January 10, 2025 (shown in MK Web by the green PBs) were shaken off by a pronounced downward counter-move before the MTS hunt. I hope this good example gives you an “aha moment”; as you can see, the SM algorithms do indeed move the price according to all these factors, so that in the end, DM traders (as a collective) are left with a loss. If you understand this point, it will greatly improve your forex trading.
Image 2: EUR/USD on a 1-hour chart (from January 13, 2025)
Source: MK Web Tool
Figure 3: EUR/USD on a 1-hour chart (from January 16, 2025)
Source: MK Web Tool
It is clearly visible that after the movement “away” from the main target (the MTS above), DM sellers enter the market (red position bars) and the SM algorithms respond by pushing the price up to the actual target.
Finally, I would like to draw your attention to the fact that after the stop hunt has been carried out, the price is dropped again. I call this type of movement a “post-stop hunt move,” i.e., the “after-movement” once the target has been successfully removed from the market.
Further explanations would certainly go beyond the scope of this article, but if you understand the example shown above (if necessary, please go through it several times), then you will at least have a general feel for what the “market causality” analysis approach entails. This would mean that my intention with regard to this article would have been successfully achieved. YES, in a way, we re-engineered the SM Algos. Hence, the MK web tool is the last bastion when it comes to the battle of “human vs machine”, or human vs AI.
Conclusion
In 2025, the Forex markets are dominated by so-called SM algorithms. As a trader who respects the market, you should be aware of this reality and prepare ourselves/use professional tools (e.g., MK Web). As you can see, I specialized in uncovering and explaining the actual market mechanisms in Forex. I have been doing this for several years.
Therefore, I recommend that you take a close look at all the free content on our YouTube channel.
I wish you every success in your trading! Please always be careful!
Djamal Marcel Adib
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