What is the stop-loss hunting technique?
The FX markets are completely dominated by so-called “SM Algorithms” or “SM Algos”, as we often call them in our market causality trading community. These Algos make sure that market prices are moved in a way that the so-called “Dumb money”, or “DM” is losing as a collective.
In order to achieve that objective, the SM Algos conducts ‘stop hunts’, which entails pushing the price of a currency market to a price zone or price level where most stops are accumulated.
How to avoid stop-loss hunters?
In order to avoid falling victim to such stop hunting activities, a sincere FX trader needs professional tools. In particular, she needs indicators which are showing ‘leading’ information, rather than price-based indicators which are ‘lagging’. The analysis tool we offer, the so-called ‘MK web’ entails such indicators.
Do brokers hunt stop losses?
The answer to that question is ‘yes’. In addition to the ‘SM market manipulation’ as described, most brokers also engage in stop hunting. For example, if a client has a stop placed just a few pips away from the current price, many brokers artificially ‘widen the spread’, resulting in a scenario where the stop of the trader gets touched and filled. Such practices often are illegal.
How to identify a stop hunt?
We distinguish between “short-term stop hunts” (STS), “medium-term stop hunts” (MTS) and “long-term stop hunts” (LTS). Each of these three components is shown in different colours on our charts. If one observes an accumulation of such stops, then eventually these price targets will be cleared.
Here you can see an example:
Is stop hunting legal?
While certain types of stop hunting may fall into a “legal grey zone”, price manipulation as such can often be illegal. Some of the SM entities are therefore fined every few years and pay fines in the size of millions. However, since the practice is very lucrative for these entities, they tend to continue the practice.
Is Stop Loss Hunting Profitable?
Stop hunting is very profitable for the SM entities. Most of the DM traders are on the ‘receiving end’ of these price moves and therefore are forced to cash in losses. The only chance for traders on the buy side is to study and become “MK traders”, this by joining our community.