Lots of new FOREX traders use too much leverage. In the company of high leverage comes the opportunity for huge profits or even more massive loses. When trading with such high risk while using the full margin in your account, you are just as likely to double your funds in a matter of 10 seconds, or to go bankrupt in just 5. These kinds of traders, who stand for most of the FOREX community, do not have the luxury of nurturing a losing trade for the long-term due to their tremendously leveraged positions and so most, of not all of them, use “stops” order / “stop-loss”. Stop order, to put briefly, is more or less an indemnification or safety measure which comes in action by giving an order to your broker to buy or sell a certain economic product when its price reaches a particular point. Investors as a rule use this system to curtail loses in any situation where they are not capable of monitoring their portfolio for an extended period. Bearing in mind that fact that most FOREX fresh traders use “stops” order / “stop-loss” give you an opportunity to step in and take advantage of this knowledge.
“Stop hunting” is the FOREX strategy which makes benefit from this information, by trying to push some FOREX investors out of their positions by motivating the price of a currency pair to a level where many high leverage investors chose to lay their stop-loss instructions (those fresh investors and traders notorious among the connoisseur traders as the “weak longs”). The fact is that the human mind logically seeks tidiness, and so most stops are gathered around round numbers ending in "00" (i.e. if the USD/CAD pair was trading at 1.1270 while increasing his value, most stop-orders would be take place in within one or two points of the 1.1300 price point rather than an arbitrary number such as 1.1313). Realizing that fact on its own is valuable information (the price of a currency pair can undergo prickly movements when many stop losses are triggered). It is a proven strategy with many possibilities of making a nice profit from this unique foreign currency market dynamic. One last tip to cut a long story short: think like the pro-traders and rest your stops at less crammed and more atypical locations.
Andrew Keynes is a long time FOREX trader. A husband and father of two, Keynes has proven himself and built his reputation as an expert to the Foreign Exchange market over many years.He has successfully served as financial advisor to several large hedge funds and groups and is nowadays busy pushing his latest effort,
www.forexblogs.net,a place on the web where economists from all over the globe congregate and share their trading and investing experiences with each other.
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