#stoplosthunting #forex #daytrading
Stop hunting is a strategy that attempts to force some market participants out of their positions by driving the price of an asset to a level where many have chosen to set their stop-loss orders. Like 👍, enjoy the video and let me know on the comment section if you have any questions 😊
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Stop Hunting With the Big Forex Players
The forex market is the most highly leveraged financial market in the world – meaning that traders take on debt to acquire larger positions than they could with only their cash on hand. In equities markets, the standard margin could be set at 2:1, which means that a trader must put up at least $50 cash to control $100 worth of stock. In options, the leverage may increase to 10:1, with $10 controlling $100. In the futures markets, the leverage factor is as high as 20:1.
Because forex trading involves a great deal of leverage, traders large and small often employ stop and stop-limit orders to stave off margin calls or lock in profits automatically.
Stop hunting is a strategy that attempts to force some market participants out of their positions by driving the price of an asset to a level where many have chosen to set their stop-loss orders.
The triggering of several stop losses at once can lead to high volatility and present a unique opportunity for investors who seek to trade in this environment.
Leverage in Forex Markets
For example, in a Dow Jones futures e-mini contract, a trader only needs $2,500 to control $50,000 worth of stock. However, none of these markets approaches the intensity of the forex market, where the default leverage at most dealers is set at 100:1 and can rise up to 200:1.2 That means that a mere $50 can control up to $10,000 worth of currency. Why is this important? First and foremost, the high degree of leverage can make FX either extremely lucrative or extraordinarily dangerous, depending on which side of the trade you are on.
In FX, retail traders can literally double their accounts overnight or lose it all in a matter of hours if they employ the full margin at their disposal, although most professional traders limit their leverage to no more than 10:1 and never assume such enormous risk. But regardless of whether they trade on 200:1 leverage or 2:1 leverage, almost everyone in FX trades with stops. In this article, you’ll learn how to use stops to set up the “stop hunting with the big specs” strategy.
Stops are Key
Precisely because the forex market is so leveraged, most market players understand that stops are critical to long-term survival. The notion of “waiting it out,” as some equity investors might do, simply does not exist for most forex traders. Trading without stops in the currency market means that the trader will inevitably face forced liquidation in the form of a margin call. With the exception of a few long-term investors who may trade on a cash basis, a large portion of forex market participants are believed to be speculators, therefore, they simply do not have the luxury of nursing a losing trade for too long because their positions are highly leveraged.
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