How to Avoid Stop Hunting while Other Traders Get

Stopped Out
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:

 What is stop hunting

You ready?

Then let’s begin…

What is stop hunting and why only losing traders

“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?

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.

The bottom line is this…

Most brokers don’t hunt your stop loss 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 loss
Here’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

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…

You want to set a proper stop loss so you don’t get stopped out “too early”.

Here are 3 techniques you can use:

1. Don’t place your stop loss just below Support (or above Resistance)
2. Don’t place your stop loss at an arbitrary level
3. Set your stop loss at a level where it invalidates your trading setup

Let 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.

2. Don’t place your stop loss at an arbitrary level

Most traders are fixated with the perfect entry, trying to nail the absolute top and bottom in the
markets.

But when it comes to placing your stop loss… where do you put?
At an arbitrary level. What the f***, seriously.

You do it because it’s the “right” thing to do — to apply proper risk management.

So you place your stop loss in the most convenient way possible. Perhaps it’s 50pips, or maybe
100 pips, or even 200 pips.

But here’s the deal:

The market doesn’t care where you put your stop loss. It moves from an area of liquidity to the
next area of liquidity, and if you place your stop loss at a random level — it will get eaten alive.

Now you’re probably wondering:

2. Don’t place your stop loss at an arbitrary level

Most traders are fixated with the perfect entry, trying to nail the absolute top and bottom in the
markets.

But when it comes to placing your stop loss… where do you put?

At an arbitrary level. What the f***, seriously.

You do it because it’s the “right” thing to do — to apply proper risk management.

So you place your stop loss in the most convenient way possible. Perhaps it’s 50pips, or maybe
100 pips, or even 200 pips.

But here’s the deal:

The market doesn’t care where you put your stop loss. It moves from an area of liquidity to the
next area of liquidity, and if you place your stop loss at a random level — it will get eaten alive.

Now you’re probably wondering:

Whenever you enter a trade, it’s probably based on a technical pattern (like breakout, pullbacks,
and etc.).

So, it makes sense that your stop loss should be at a level that makes your technical pattern
invalidated.

This means…

If you’re trading a breakout, then your stop loss will be at a level where if the price reaches it,
the breakout has failed.

If you’re trading a pullback, then your stop loss will be at a level where if the price reaches it, the
pullback has failed.

If you’re trading chart patterns, then your stop loss will be at a level where if the price reaches it,
the chart pattern has failed.

And once you’ve defined a proper stop loss, the next thing is to apply proper position sizing so
you don’t lose a huge chunk of capital — even if you’re wrong on the trade.