Forex: How To Bank Huge Profits Placing Stops Away From The Crowd

Forex market is the most leveraged financial market in the world. The leverage in forex is fixed at 100:1 and can increase to 200:1. That implies that a simple $100 can control up to $20,000 worth of currency. Why is this so significant (also when trading using forex trading system)? Principally, the high level of leverage may turn forex either in enormously profitable or extremely risky business, depending on what side of the trade a forex trader is on.
The majority of professional forex traders reduce their leverage to no more than 10:1 and in no way take enormous risk. But no matter if they trade on 200:1 leverage or 2:1 leverage, practically everyone in forex trades with stops.
Exactly due to the fact the forex market is so leveraged, the majority of market makers realize that stop-losses are vital to long-term survival in forex trading systems terms. Trading without stop-losses in forex market implies that the forex trader will definitely face obligatory liquidation by means of a margin call. A larger part of forex market players are considered to be speculators, consequently, they simply can’t afford to hold to a losing trade for long since their positions are leveraged to a great extent.
Thanks to this extraordinary twofold nature of the forex market (high leverage and the common application of stop-losses), “stop hunting with the big specs” is a very widespread practice. Even though it can have negative association to some forex traders, “stop hunting” is a legitimate kind of trading. It is nothing more than the art of throwing the losing players away from the forex market. In forex slang they are called weak shorts and weak longs.
In forex trading, large speculative players, for example central and investment banks in addition to hedge funds, like to hunt for stop-losses expecting to generate the following directional momentum. As a matter of fact, such practice is so widespread in forex that any trader who doesn’t know about these price dynamics will most likely bear pointless losses.
Since the human mind logically seeks order, the majority of stop-losses are grouped around round numbers finishing in “00”. For instance, if the USD/GBP pair was trading at 1.4536 and its value is increasing, the majority of stops will be located within one or two points of the 1.4500 price point sooner than, for example, 1.4518. This information alone is the precious knowledge, since it unmistakably shows that most individual forex traders should put their stop-losses at less crowded and more atypical positions.
More attractive, though, are the profit opportunities that are possible to derive from this exceptional dynamic of the forex market applying forex trading system. The fact that the forex market is stop-driven to such an extent opens an avenue of profit to a couple of money-making setups for short-term forex traders.