Are Forex Brokers Running Your Stops?
A lot of Forex traders don’t trust their brokers. And don’t get me wrong, you should investigate your broker before giving them your money. The biggest complaint that befuddles me is the claim brokers run stops.
Forex traders think by placing a stop loss on their trade, the broker knows where it is and will purposely do something to knock them out of the trade. The reason many traders think this is because it happens so often. You place a trade and your stop loss… then you watch price move against you to take you out of the trade before moving in the original direction.
Yes, this is very frustrating. But I think your anger is directed toward the brokers instead of the traders really responsible. I don’t think it is the broker hunting your stops… but the big Forex traders. (After all, most of us are not trading accounts that matter in the large picture… so it is a little egotistical to think the broker cares about our puny trade). There is a more logical explaination of what is going on.
Here is an example of why stop running happens. You, the novice at home trader, have identified a good level to SHORT a currency pair. You place your SHORT trade and place your stop loss above the recent swing high. At first you see profits… until Price reverses direction and takes out your stop!
Well, the big traders also identified this area to go SHORT, but they don’t weant to get in late. Therefore, they push price UP, knowing most people in the trade have their stop losses above the last swing high. Then they reverse their trade and go SHORT.
Here is what this accomplishes. They get into the SHORT trade at a much better price with much more profit potential. Since they know the market wants to go short, they can create momentum by taking out the stops of the traders already in the trade… knowing they are going to jump back in when price falls again. This is how the professional traders can get into the move at the beginning and make profits faster.
I hope you can see that stop running is not really about just you and your broker. Professional traders use this technique to make more money. I think it is shortsighted to focus on the brokers and more accurate to focus on the big Forex traders.
I hope you are starting to see how learning price action Forex trading can give you indight into what the big traders are doing. They are, after all, the ones moving the markets. Price on your chart gives you insight into what they are doing and which way they want to trade… which you can use to your advantage.
So, stop pulling your hair out and blaming your broker. That is unproductive. Learn to read price action and turn stop hunting by the pros to your advantage. The next time you see a perfect trade setup that reverses to take out the previous swing high or swing low… join the big traders for more profits faster!
If you want to see an entry strategy based on stop running, check out: Dr. Barry Burns Stop Running Setup
To learn more about using price action to your advantage: Price Action Forex Trader