Stop Hunts & Forex Market Manipulation

Mar 16, 2015Blog, Forex Lessons, Trading Articles

Have you ever been in a forex trade and price reversed and went against you almost as soon as you entered the trade? Have you then got stopped out only to watch the price go in your intended direction without you? Why does that happen? Well, it is easy to think in such situations that the forex markets are against you or that someone must be watching your every move. And to a degree – you are right, someone is watching over your shoulder and the markets do move against you. The problem is that unless you know what to look for, then this will continue to happen again and again.

The question is how can you prevent it from reoccurring? How can you ensure you are on the right side of the market rather than on the wrong side? Let’s break down what is going on in the mind of a retail trader and then look at what is actually happening in the market.

Retail traders thought process – in this case, we will use the example of a forex trader called Mike:

1. Mike has been trading forex for some time now and loves the forex markets. He regularly follows many blogs and websites as well as listening to many trading gurus. He has read numerous books on trading and has bought some online courses and strategies which state that anyone can make money trading them. Mike even paid to attend a week long course on trading ran by a big trading education company and has been demo trading for a few months but is now ready to trade with real money to make a monthly income for his family. He feels he know forex works. He has decided that he wants to be a trader and quit his job to pursue his dream. Mike is intelligent, numerate and committed.

2. Having chosen to be a Forex day trader, Mike prepares himself for each day by reading the news overnight, analyzing the trend, plotting his various indicators and moving averages as well as support and resistance levels. He has back tested several strategies and is keen to see how they perform in a live environment. He focuses on the major USD pairs, especially EURUSD and GBPUSD and looks for opportunities each day.

3. He likes trading breakouts especially when the price is moving with momentum so looks for setups which meet his rules each day.

Now the character above, Mike depicts the average retail forex trader. Chances are that such a person is losing money regularly for the simple reason that they are using retail tools to trade a professional market. Mike would also think he knows how to trade forex properly. If any of the above resonates with you and you are currently in that category I would like to ask you a question….how is your trading really going? Are you making the kinds of returns you were hoping to make when you started this business? If not, don’t worry as help is on the way. The fact is that it is possible to make money consistently in the markets – the only problem is that unless you have the right tools and know how to use them, then this will be virtually impossible.

When I started out forex trading many years ago – the first few years were really about me seeking out what works and what doesn’t – mostly finding out what doesn’t! The problem is that unless you know where to look then you can continue to search in vain. Now before we speak about what approach works, let’s look at what’s wrong with the above way of approaching the markets

Let’s take it to the Forex charts…

The chart below is a chart of GBPUSD and I’ve annotated how a typical retail trader like Mike would typically be thinking as well as how the institutions actually move the markets:

how Forex works, how most traders trade the markets example

how Forex works, how most traders trade the markets example

Mike’s experience can be summarized as this; He entered a forex trade in the direction he thought the market was going which was long, he was proven wrong and got stopped out. Mike then thought “let me reverse my trade to recoup my losses” and rationalizes that he was wrong and the trend must be down for the day. He shorts on the break of support and the low only to see price reverse against him and go up. Mike has taken two losses for the day and feels confused and exhausted. Unfortunately, this is the experience of many retail forex traders and it’s a repeating cycle of losses intercepted with the occasional winning streak of trades which are just enough to give you hope that you need to keep going, but not consistent enough for you to make a reliable income.

The Institutional Perspective

how Forex works, how professional traders trade the markets example

how Forex works, how professional traders trade the markets example

The Breakdown:

Can you see the difference between how a retail trader and professional trader read the market? In the above example, smart money had a bias to take the market up but unlike retail traders who are happy to buy at just any level or even on a break of a high, smart money is always looking for a place to buy at value. Also, institutions are looking to put very large positions into the market and as such are looking to buy at the places where they have the largest build up of orders. This means that if theyx are looking to buy then they need to identify the price points in the market where they can find a large number of sellers to match their positions.

If they cannot find such a place then they simply cannot transact the volume of orders that they need to. So in the above example, the only way they can entice enough sellers into the market is by manipulating the market to go down so that it looks like the trend is down which attracts traders like Mike to enter a short position. This takes place in circle A and we can see that price quickly retraces back up after having trapped a lot of traders short.

What happened next is that smart money may have realized they didn’t have the number of sellers they needed for their buy positions that they would need to entice more sellers another way. What they then did was to push the price up and suck buyers in at circle B. The buyers at circle B are mostly retail forex traders like Mike who saw that price had made a false break at circle A and now feel confident that they should be buying to fall in line with the overall current bullish trend. Most of these buyers will place their stop losses just below the most recent low which is circle 2. What happens next?

Smart money reverses price when it is soon discovered that the buying pressure at circle 2 is not that strong overall causing the price to fall to point 3. Now point 3 is where smart money accomplishes their business plan. They push price down to entice new sellers who were on the sidelines and also those who would have now been stopped out from the long position to now go short. In pushing the price down below point 2 they will also have hit the stop losses from those who bought at the top. In this way, smart money would have collected a large number of sell orders to match their buy orders and be finally in the position to drive the market higher which is exactly what happens as price ends up breaking out of the consolidation.

This Happens Frequently…

The above happens on a daily basis and is the main reason why most retail forex traders are unsuccessful in trading Forex. They do not know how to trade forex properly. Chances are that at least 8 out of every 10 people who read this article have had a similar experience to Mike and been the victims of market manipulation. The question is how do you identify it? That takes skill and practice and our Forex Course focuses on that specifically.

I encourage you to check it out as it will help your trading immensely and finally put the edge in your favor. In the meanwhile just be aware that the next breakout you take in the direction of the most obvious trend may not be the easy trade it appears to be. Also, put yourself in the shoes of an intuitional trader who needs to put hundreds of millions into the market at the best possible price – where would you prefer to buy? Where are the areas of value you can see on your chart? Doing these simple things will help your trading improve immediately.

Find more great content check out below articles

Forex Trading Strategy

Market Maker Manipulation

Another Stop Run???…

The Trader’s Journey

How To Create A Trading Master Plan 

Day Trading Vs Swing Trading Vs Position Trading – Which One is Best?

Trend Identification

Trading with Fibonacci Part 1: Who And What Is Fibonacci?

Trading With Fibonacci Part 2: Internal Retracements

Trading with Fibonacci Part 3: External Retracements



  1. Human

    Yah thats true. Good point. thanks for this powerful informationd

    • Just About Trading

      Glad you liked it.We find that many people look beyond the obvious when it comes to who moves the markets and thus continually lose trading forex

  2. Rebel Boogie

    Great advise

  3. Engr Jonathan

    Nice but you have not revealed the secret of how to identify the tricks they use to manipulate retailers like Mike.

    I NEED to know how to beat their manipulation!

  4. Amila Wickramasinghe

    I have a question. How can smart money drive the prices down ? I assume that is by selling X amount of volume right? Then when traders start to sell thinking it’s a reversal creates a lot of selling pressure and the smart money then buys Y number of volume. My question is Y sooo large compared to X? Because otherwise what’s the use of having to sell 10M just to buy 11M or 12M? Isn’t this a big risk for institutions? Sorry for newbie question but i just can’t get my head around this.

  5. Jose Lasanta

    Thank you!

  6. Ngwanom edwin

    Woohoo am happy joining this great group and wish to learn more from you sir

  7. Andre Alves de Souza

    So if Mike studied the market for a good time. Tried his strategies… before going into the market and when He goes into the market, assuming his back tests were successful shouldn’t his strategies also work when on a live market?

    Yes it should..

    If Mike likes the breakouts his stop loss should not have been at the bottom.. He should have place his entry at the break out and his stop loss would be “discretionary ” and quick… if the breakout did not work… it did not work and that’s it. GET OUT.

    When break outs work they work because someone.. or a few need to buy “desperately” and quick… if the move is slow is not a break out…

    Yes institutions maybe fattening the big in this situation… but you can’t tell unless it actually happens.. looking at the past does not give you the future.

    Mike has a lot to learn.

    All the best

  8. Web hostings

    Absolutely perfect point

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  10. Allen Lee

    That is very enlightening. I have been encountering this for the past 2 weeks and was getting so frustrated by it.
    Thanks a lot.

  11. James

    Immense knowledge for trading the right way

  12. Siphiwe

    This is the greatest advice in forex . what we are taught is completely not working out for us