I have been involved in FX markets in one form or another for 25 years and believe myself to have seen most things that can occur.
For example I was in charge of the overnight desk at a major trading bank the night that sterling left the ERM! That is the single most incredible market move I have ever seen.
I have executed billion dollar orders manually and seen stop losses get chased by traders because they see that as a legitimate market practice.
In this business you are always learning and as such the retail business is something I have been studying and coming to terms with for a couple of years now.
It interests me immensely that the retail market sees itself as a totally different animal from interbank and I can see why that is. However, that does not detract from the fact that pricing in the retail market is determined by the interbank guys.
I have read number of blogs recently where the chasing of stop losses has been deemed as many things but uniformly as the work of Satan!
It is time we all got real and realized that individual stop losses in the retail market do not even register on the radar of the interbank guys.
Having said that, there are two things that there are reasons why retail stops are brought to the attention of the interbank market:
First, A very high percentage of retail traders trade off charts using technical analysis as their only method of entering and exiting trades and nothing else. Irrespective of whether you trade five minutes, fifteen an hour or four hours, the signals you get will lead you to place stop losses in essentially the same place and whilst one individual fish is not of particular interest to the trawlerman, a whole shoal will lead him in to make the catch!
Second, The same thing happens when we copy each other! Social trading far from giving safety in numbers simply does a similar thing as it bulks up our trades.
I couldn't in all conscience recommend anyone to use social trading as a method of entering these markets. Interbank guys must just love watching everyone clubbing together.
We have all heard that past performance is no guarantee of future success so in any event it must be hugely difficult to follow anyone.
What we need to avoid are self fulfilling prophesies, learn to think for ourselves. Examine why we are in these markets in the first place. If we want to invest in FX simply for a return, there are a number of FX funds that deal in the interbank market with proven strategies and track records that go back years. Capital guarantees may be a thing of the past but for an investment grade return with added risk returns a fund is a good alternative.
if, on the other hand, you feel that you want to trade for the excitement of it and the buzz from "getting it right" trade using every tool at your disposal. Do it yourself! Don't just look at charts, understand what is driving the market and most of all avoid copying other people either manually or automatically, you will attract bottom feeders who will pray upon your stop losses.
It pays to have an understanding of the interbank market and how it operates. Less than one in one thousand retail traders have seen the inside of a banks treasury and probably less than one in twenty thousand has actually worked in one. I will guarantee though that those are the guys who are most successful.
How many of you have attended a course on how to be successful trading FX?
How many of those courses showed you how the interbank markets affects what you see on your charts every day?
Get a grounded education in how markets operate as well as understanding charts and fundamental analysis. It wont stop your stops getting hunted out but it will show you how to avoid getting caught occasionally and will maybe help your positions avoid "sleeping with the fishes"