The Forex market is the most powerful financial market in the world. In stocks, the standard margin is set at 2: 1, meaning that a trader must pay at least $ 50 in cash to control the $ 100 value of the stock. In options, the leverage increases to 10: 1, with $ 10 controlling $ 100. In futures markets, the leverage ratio increases to 20: 1. In this article, you will learn how to use Stop to launch a Stop Hunting strategy.
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Stops are very strong signs
Precisely because it is used so much in the Forex leverage market, most traders value the loss and use it. The philosophy that stock market shareholders use and wait long enough for their stocks to make a loss and make a profit is unworkable in Forex. If a trader in Forex does the same, he will undoubtedly one day be marginalized.
With the exception of a few long-term investors who may trade in cash, a large portion of Forex market participants are small traders, so they can not easily reap the benefits of long-term trading. Because they use very high leverage.
Due to this unusual dichotomy in the FX market (high leverage and general use of losses), stop hunting is a common practice. Although some readers may have a negative view of this issue, stop hunting is a legal form of business. This is nothing but the art of destroying the dead actors of the market! In Forex, they are known as weak buyers and weak sellers. In fact, it is so common in FX that any trader unaware of this price dynamics will probably suffer unnecessary losses.
Because the human mind naturally follows patterns and algorithms, most stops are concentrated near the market rand prices, which are accompanied by a “00” at the end. For example, if the EUR / USD traded at 1.2470 and its value increased, the biggest stop is at one or two price points of 1.2500, for example, 1.2517. This fact is just a valuable knowledge. , Because it clearly shows that most retailers need to make their stops in more crowded and unusual places.
More interestingly, however, is the likelihood of profiting from this unique dynamics of the foreign exchange market. The fact is that the FX market is largely driven by stops, providing many short-term trading opportunities for enthusiasts. In The Daily Currency Market Trading (2005), Katie Lane shows one of these adjustments based on the disappearance of the 00 level. The approach discussed here is based on the opposite concept of joining the short-term movement.
Before we continue this article, it is necessary to mention that in many Forex brokers it is not possible to use this strategy because they cleverly manipulate the chart themselves near the critical points of the market. We recommend that you use reliable brokers such as Alpari Brokerage for this purpose.
Use the Huntingp stop strategy
Stop-hunting strategy is a very simple method, which requires nothing more than a price chart and an indicator. In summary, the settings are summarized as follows:
In a one-hour chart, draw lines 15p on each side of a rand price. For example, if EUR / USD is close to 1,200, the trader should show 1.2485 and 1.2515 on the chart. This 30-pipe area is known as the “trade area”, much like the 20-yard line on the football field known as the “penalty area”. Both come up with an idea – meaning that participants are more likely to succeed once they enter the area.
The idea behind this stop is simple. As prices approach the number of rounds, traders will try to target stops in that area. Because FX is a decentralized marketplace, no one knows exactly how many stops at each particular 00 level, but traders hope this is large enough to move more trading positions – a stop order rule. The price is more in the price of this direction because it moves under normal conditions.
Therefore, in the event of a buy trade, if the EUR / USD price is rising to the level of ۵ 2500, the trader will buy when the pair crosses the price of 1,2485 and the target is initially the same ٫. It will be 2500 with a loss limit of 15 pips. If the price does not move immediately towards the target, the chances of it failing are high. The target of profit in the first unit is the amount of initial risk or approximately 1,200, at which point the trader moves the stop in the second unit to lock the profit and reach the free risk mode. The target in the second unit will be twice the initial risk, or 1.2515, which allows the trader to get out of a burst.
Aside from looking at these key chart levels, there is only one other rule a trader must follow to optimize the chances of success. Since this startup is essentially derived from the trading business, it should only be traded in the larger direction. There are several ways to determine the route using technical analysis, but the average simple 200-year moving average (SMA) in hourly charts can be very effective in this regard. By using the long-term average in short-term charts, you can stay on the right side of the price action without being exposed to sudden movements.
An example of a stop hunting strategy
Note that in this example, on June 8, the EUR / USD is well below the 200 SMA, indicating that the pair is strong in the downtrend (Figure 1). As prices reach the level of 1,2700 from the downtrend, the short trader crosses the short price above the level of 1,2715 and stops 15 points above the level of 1.1730. In this particular example, the downward movement is very strong, because the traders’ gun remains at 1,700 hours. The first half was traded at 1,2700 for a profit of 15 points and the second half at a rate of 1,2685 and 45 points were released from the bonus for only 30 points.