Originally Posted by Verniza
That same logic will apply to people taking long positions as well. So according to you, you may as well lay off trading because hedge funds or market making brokers will hunt your stop loss whether or not you long/short.
This so called "stop loss hunting" occurs everywhere whether you are trading with a market maker or ECN or interbank market. The only difference is who the market movers are. All you need to do is be smart about it and know how to time your entry. You also need to manage your risk capital per trade. The so called "stop loss hunting" can be overcome with proper risk management. Don't put the blame of your losses to market movers instead learn to adapt to it and time your entries.
I've never had any problems shorting currency pairs. Sometimes major slippage may occur and hit my stop loss but with proper strategy and risk management it feels more like an ant bite rather than a smack to the face.
Actually, I'd hope that if you're taking a long position that your fundamental valuation is so sound that it allows you to double up and buy more of the security if the security is falling in price. That cannot be said for short selling, where costs of borrowing can be high and positions closed out prematurely as a result. Hence, why I'd never recommend short selling to anyone who isn't already sophisticated enough to have 50K of capital to cushion losses. The mere case of shorting a stock and not having enough liquidity to double down and not worry about hitting your stop loss will open you up to being squeezed.
But from what I gather, you're a technical analysis guy who day trades. I'm a fundamentalist and do not use stop loss orders as my delta, beta and commodity exposure can simply be managed with derivatives. I also only close out my trades when the metrics I've valued the security on have changed materially.
Do remember that the vast majority of traders will crash and burn spectacularly and not even the big players are immune. The hedge fund industry last year had abysmal returns and almost all investment banks worldwide have shut down their proprietary trading desks regardless of where they operate.
When volatility is the order of the day, leverage is not your friend.
I'm curious as to what you mean by proper risk management, as I doubt anyone with less than enough to pay down a mortgage is sophisticated enough to understand what hedging is and how to not to lose their savings. Honestly speaking, I've seen too many people with little in their accounts get burned far too often to recommend anyone trade unless they've done it professionally or have the net worth to absorb the losses when they occur.