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There are two main problems with this thought process.
The first is the psychology involved with this belief. Do you really
believe that the Forex broker is going after your order? Is your
position so important to the Forex broker's profit and loss that they
will run the market up or down to take you out so they can book the
spread on one more trade today? How large must your ego be to believe
that the broker is lying in wait to execute your stop?! Does the trade
desk then give each other a bunch of high-fives and cheer that they
took you out? Hardly. What more than likely happened is that the price
action ran to the of stop loss orders and then turned. There is plenty
of debate out there about this topic including discussions on dealing
desks, ECN brokers.
Another problem with having your stop loss order ran is more
likely the fact that you have your stop placed too tightly. Too small
of a stop is as bad as too wide of a stop! Many new fx traders think
that a three to five pip stop is a great idea. Sounds good on paper.
But when you consider that spread of one to four pips and an Average
True Range of ten pips these small stops will cause you to have
several small losses. Traders should use the technique of placing your
stop just on the other side of the normal support and resistance
lines. To prove the point that these areas of supply and demand will
be more effective in your currency trading.
Using this example of the GBP/USD on a fifteen minute chart,
the trader draws in his support resistance line just like many trading
manuals teach. He enters a short position near the 1.6189 level with a
stop a few pips above. How many dozens or hundreds of traders on the
planet took the same trade with their stop near the same level? A few
candles later all of those buy stop orders got hit.
Forex brokerages do not only have to fill the customer orders
in the open market, but can also transfer shares from their inventory,
or even sell short as a market maker as long as they give the customer
the best price as indicated by the exchange at the time of processing
the order. A profitable trader who has seen the pattern repeat time
after time would take the opportunity to short into this strength in
anticipation of the reversal that occurs from profit taking or stop
losses being triggered once the buying pressure has been exhausted.
This is exactly what many market makers and specialists do every day.
Discovering the truth about how the markets really work and
finding that in actuality, it's not as complicated as traders might
think is a process that takes some time. It's one thing to spot where
the bulk of the buying and selling is happening and learning what that
looks like on a price chart, but it's quite another matter to apply
these principles. You need to learn what works in forex trading and
stick with your trading plan. |
