Let's break down the topic step by step for you to understand it clearly:
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1️⃣ What is a Stop Loss?
A stop loss is an automatic order when trading used to protect capital from large losses.
For example: If you buy a coin at $10 and set a stop loss at $9, the platform will automatically close the trade at $9 to prevent a larger loss.
In other words: It is a maximum loss limit that you allow yourself to bear before the trade is automatically closed.
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2️⃣ How do market makers use it?
Market makers are the institutions or professionals who control liquidity and large price movements. They have smart ways to manipulate emotions. Here are the key points:
A) Stop loss trap:
Market makers know where the stop losses are on the chart (often around famous support and resistance levels).
They suddenly raise or lower the price to hit those levels, activating many stop-loss orders at once.
Result: Increased liquidity in the market and the ability to enter large trades at better prices for them.
B) Moving the price to confuse traders:
After the stop-loss orders are activated, the price quickly reverses direction.
The average trader often loses, while market makers profit from this sudden movement.
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3️⃣ How do you protect yourself?
Do not place your stop loss at very obvious levels (like strong support/resistance), but leave a small gap to avoid the makers' trap.
Use a trailing stop to secure profits as the price moves in your favor.
Monitor the liquidity and volatility to determine the best stop location.
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In short: A stop loss is a protective tool for the average investor, but it can be exploited against you by market makers if you set it too clearly.
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