I’ve read some articles that say that one of the ways to avoid having your stops taken out by stop hunters is to widen your stops, thereby keeping them away from where hunters would expect the large pool of stop losses to be. For example, on a reversal trade, since hunters expect the pool of stops to be within, say, 10 pips of support or resistance, set your stop 15 pips away.
The issue: On the one hand, by widening your stop, it might be missed by the hunters more often than otherwise and you’ll stay in more trades instead of losing your stop loss cash value each time. On the other, each time you widen your stop you’re reducing your pip value; so if you win the trade, you’ll end up with less profit.
Question: Which would be better in the long run, to place stops in the expected place and get stopped out by hunters more often while earning more on the trades you win, or to widen your stops, thereby keeping you in more trades, but earning less on each of those trades?
[I]In winning trades[/I], pip-values are not determined by where your stop [I](never touched)[/I] was placed.
In winning trades, profit is determined by:
(1) your entry price, (2) your exit (take profit) price, and (3) the relevant pip-value
— [I]none of which[/I] is affected by where your stop was originally placed, how many times you moved your stop, or where your stop was sitting at the time you exited your trade.
Hi NormanA - interesting question that’s hard to answer definitively.
I have to declare I have no faith stop-hunters exist in the forex market. I do not believe any player is large enough to either move the market 10 pips or stop it moving 10 pips simply in order to force a number of other players’ positions to close, so they can make a profit.
It is said that professionals care about risk, amateurs care about profit. So, I disagree that stop-hunters move price, and I disagree that price is manipulated to hit stops to generate profit.
However, I can accept that if the largest market players see price approaching a proven strong resistance price, there will be an increasing tendency to get out early rather than wait for their stop to be hit. Once some large players start hitting Sell in such a scenario, the snowball effect will drive others out too, as it appears less and less likely that the resistance level will be even touched.
So, we might differ about the causes but that still leaves this real price action behaviour to contend with. I can’t see any way round this other than by widening stops so that a Sell is triggered lower than Resistance and a Buy is triggered higher than Support. I can’t see any way to be precise about it though.
I have seen some amazing price movements over the past 3 months since I started trading the Demo’s and more recently a Live account. Everything from being stopped out by a 20 pip+ spike by .001 with the price returning to it’s original trajectory, place a a buy and a sell (Hedge) within 4 points on a trend only to watch the price dance up and down between the zones for hours at a time… Trends that have been running for hours only to spike and stop you out at the exact moment of a buy or sell… Sometimes I have killed the SL (Not Advised) when the price moves towards it and instantly the price moves back in the correct direction almost like it can smell it… hence my scepticism…
Experienced Traders will call this coincidental timing etc. etc. and they are probably correct. I have to agree that entry timing is everything in Forex. Getting your entry wrong either results in a longer than desired trade or being stopped out.
To make a profit I have resorted to scalping, getting in and out of the market within 4 - 6 pips with the strategy the less time you are exposed to the market the less the risk of a trade turning against you… the hard way to make a profit.
Before I funded a live account I ran numerous brokers platforms (both Demo and Live) side by side just to check the prices supplied and some results are completely different… a few of the Brokers had numerous large spikes compared to the others.
Tommor’s spot on, a way to improve your results is not to aim for tops and bottoms and just trade a consistent “meat in the middle” strategy.
Like Tommor, I also have doubts about the existence of stop hunters, at least on a large scale and in the way many view them.
If you think about it, on most common pairs there are probably thousands of stops placed on every single pip,and several times that amount on the popular numbers (those ending in a 5 or 0), so why hunt for stops when they are everywhere anyway?
I think what may be happening is that the big players are placing their entries/exits at levels away from retail traders so they can maximise their trades and reduce their risk, and sometimes these entries/exits happen to coincide with the retailers stop levels.
I may well be wrong, would love to hear from someone who has been on the other side of the fence if at all possible
Hi Carlos, what you say about the market is correct, I’m pointing to the some of the broker platforms themselves.
The insto’s say " Ohh, its not possible to watch 1000’s of customer accounts and stop them out… it’s impossible"
Not so… the Banks and Credit Card companies are using algo’s to watch 1000’s of clients accounts world wide for security… an unusual transaction and “bang” you are notified or the card is suspended. Never underestimate the reach of big data…
You have a lightly regulated financial operation that has a proprietary platform… an account number… possibly $1000’s in a connected Bank / Credit account… and T&C’s in place that absolve them of loss for just about every situation, including currency price fluctuations… hence my scepticism…
Reading elsewhere on this site I noticed a feature on MT4/MT5 that hides SL’s from brokers, maybe feedback from traders that use this feature, Why is it available? Do you use it and was a change in performance noted?
I’m baffled. In this Babypips lesson, Calculating Forex Position Sizes, it says, “Next we divide the amount risked by the stop to find the value per pip. (USD 50)/(200 pips) = USD 0.25/pip.” What this means is that if you double the stop you halve the pip value; and however many pips you win in the trade, the profit is halved. I don’t know how to reconcile this with what you’re saying.
It’s not as clearly worded there as it might be, Norm.
In that sentence, the words “value per pip” means “the value per pip that the trader actually wants to be risking allowing for the effect that his position-size will produce, given the constant value per pip of the instrument being traded”. (It’s a little unfortunate that the expression “value per pip” is used with that meaning, in my opinion - I [I]do[/I] see how it could be confusing!).
The pip value of EUR/USD is [B][U]always[/U][/B] $10 per full lot, regardless of your own position-size (and leverage). That’s immutable.
It really doesn’t mean that. It just looks, through a perhaps-unfortunate choice of wording, as if it means that.
At first I was a bit confused by the “change stop, change pip value” thing, but then I realized it meant changing position size. Double your stop, halve your trade size. That’s assuming a fixed designated $$ risk.
I meant to offer this observation (for what it’s worth, if anything) in my post above and then promptly forgot. :8:
I think forum conversations under the subject of “stop loss hunting” are quite often confused and confusing, because the phrase has (at least) two slightly different frames of reference, and for that reason it seems to me that people can easily be talking at cross-purposes about it.
Some people interpret it as referring to “unethical practices by counterparty market-makers, to profit illicitly from their own clients”; others take it as referring to the (undoubted) areas of congestion of stop-losses (i.e. buy/sell orders) in “obvious” positions, which can/will/might translate into areas of clear imbalance between buying-pressure and selling-pressure, with the potential relatively increased price action that they can presage, of which it’s perfectly legitimate for anyone to try to take advantage (although obviously far easier for “big players” to do so).
Good point lexys and it made me think over what is worse than having your stop hit because you placed it in a probable congestion zone along with everyone else’s?
In some respects, the answer is it can be worse to NOT have your stop hit. It can often be better to be stopped out before price gets into a congestion zone, as once its there, it might well be mired in a range of grinding ups and downs for days or even weeks. If you’ve taken the loss, at least the capital is released to be re-deployed into a better trade.
(I think I first heard the expression “congestion-zones of stop orders” from a hedge-fund trader, myself.)
Hard to know, and not possible to prove or to disprove, really … but it certainly seems that people on institutional trading-floors, trading in the interbank market, don’t think it’s a fallacy? I suppose that doesn’t necessarily prove they’re right, though.
Not really relevant to me, personally (fortunately).
To be honest, I’ve always thought that if this is any kind of an issue for a retail trader, they might be erring on the side of overtrading and/or entering their trades prematurely, anyway. I also suspect that the advent of HFT’s may also make this slightly more relevant than it was, but all of that’s just my perspective.
It may well become relevant at inter-bank level [nor do I care for the truth] where market orders are actually [I]market orders which hit the fx market[/I]. From a Retail level it is a fallacy, it makes no difference if retail stops are all placed in one [I]‘price zone’[/I] or not. Chances are that all retail traders don’t have their ‘fx trades’ sent to market anyway and they are settled in house as a net offset.
Just had another miracle spike that took out my SL on the EURUSD …
Top of spike 1.04794 SL set at 1.04793… WTF…
Check the chart… 19th Dec 5:50pm AEST. (Cannot post images under 5 posts)
I don’t mind being taken out for a poor trade and tight stop but from 11.9 pips away in one 5 min candle by 0.00001 of a cent… unbelievable… and then return to the exact price it came up from and continue downward…
Generating market liquidity… “Stop Loss Congestion Zone” BS… the SL is in the middle of nowhere