FREE FOREX STRATEGIES

Stop Hunting?.. No.


Here is a good example we just encountered: a losing trade, which looks very much like dreaded "Stop Hunting"... Oh-oh..

Let's take a look:

EURUSD 5 min chart. We're up for a quick trade.
Price congests inside a neat flag pattern. We'd like to enter the market on the breakout. Sell Stop order is set below the flag formation (we're bearish today).

The price breaks down as expected, and fills our Sell Order.
Now, where do we want our Stop Loss placed? Best place is obvious - above the flag - at the resistance level.
Zooming out to hourly charts, we can confirm that our Support and Resistance levels (blue horizontal lines on the chart below) are chosen correctly.

We set Stop Loss just above the 1.4098 (the round number 1.4100 suggests it's an even better Resistance level).
So slightly above 1.4100 is where our Stop Loss is set. Not very visible on the chart above (dashed green line), apologies. Screenshots are taken on the go.

Now we wait

Not for long, as it's our quick 5 min chart trade.
Price ranges for a while, and then... this... it climbs up, hits our Stop Loss (leaving us with a losing trade), and goes back down...

What a bad luck! Or what most of beginner traders think, it's real Stop Hunting: your broker saw your Stop Loss level, and they just pushed the price to take you out. Wrong.

It's not a stop hunting. Why?

Our Stop Loss was located at the "busy" price level - Resistance level - where Many Other Traders were anticipating price Breakout or Reversal, hence many Buy and Sell Orders were placed there. Guess what happens next?

As price reached the "busy" level of Resistance, some traders (like us) were stopped out, but other traders who were waiting to Sell at Resistance were filled and happy, and in this particular case, they Won, overpowering Buyers and bringing the price down.

Now with this knowledge, we can breath out. It's not stop hunting.


Edward Revy,
http://forex-strategies-revealed.com/

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