Stop loss hunting strategy: how to be the hunter

We’ve all experienced it – getting your stop just touched out, before the price reverses. Well, wouldn’t it feel better to be on the other side of stop loss hunting? Taking advantage of other people’s buy and sell orders to get an accelerated profit?

Now, I’m not suggesting that you’re going to suddenly get some market-moving power with enough capital to push the prices over other trader’s stop levels. But I am going to show you how to quietly watch and wait for other traders to get their stops triggered, and then to run your trade off the back of some momentum it causes.

So, where’s the treasure buried?

There are signs all over your price charts – like crosses on a treasure map – if you’re not using them, you’re missing out on the best way to profit.

I know I bang on about this … but really, the most important lines you can add to your charts are support and resistance levels.

If you’re thinking that you’re not adept at drawing these lines … or that it’s fiddly to get them right … or that they are just subjective …

Well, I don’t really care – just draw them on anyway.

Even if your lines aren’t spot on, they’ll be roughly right – S&R lines are where you think they should be. Of course, the markets can always have other ideas … but, as traders, we should be very used to being wrong!

And what’s so special about these lines?

Support and resistance levels are markers for where everyone else is in the market – pointing to where other investors have placed their stops and targets. As I say – these are the crosses on our treasure map.

There are loads of reasons why these levels are important, but today I want to show you how you can use this information to BECOME the stop loss hunter.

These key levels will be littered with traders’ orders – there’ll be buy orders and sell orders, when traders want to enter and exit the markets. As levels get breached, these orders ping into action, causing all kinds of mayhem around key levels.

I expect that you’ll have noticed how sometimes prices move sharply away from key levels, just spiking up to touch them. But other times, the price gets congested at a key level – it’s exactly these ‘messy’ levels we want to take advantage of.

When we spot congestion at a key level, we should watch and wait ….

The stop loss hunting strategy

What we want is for the congestion to build into a small channel, as the price bounces back and forth, knocking out all those orders (we won’t try to trade this range, it’s too tight to offer any reasonable return).

Instead, we’re going to enter on the breakout of that channel.

Again, we’re not going to rush this. The nature of a consolidation zone like this is that it’ll be untidy, with spikes out of the channel and false breakouts, so we’ll wait for a clear signal that prices are moving out.

In the example above, we’ve two key levels stacked on top of each other – an historical support level and a pivot point – this is ideal for creating a ‘messy’ interaction!

After a small bounce off the pivot point, the price continues down through both support levels, then bounces back and forth around these levels, forming an untidy channel.

We’re now poised to attack when the price moves out of this channel …

When the price does move up – again, we wait. We want a clear sign that the price has a direction – which we only get that with the engulfing candlestick pattern which forms right on the pivot point line. This is our signal to buy.

With all those traders’ orders already knocked out, we now have a clear path upwards. One of the great things about these trades is that we can have an excellent risk-reward profile, with tight stops and ambitious targets.

Look out on your charts – particularly in shorter time frames – for these untidy consolidations around key levels. Be careful not to rush into these trades – wait for all those orders to be hunted out … then make your move.

I look forward to hearing how you get on with this stop loss hunting strategy.

 

 

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