Can Traders Ever Profit from Stop-Hunting?

This is something I have no personal experience with but have been wondering about lately - let's say you have a shady forex broker and you know that at certain times of day they're likely to go on a stop-hunt and pocket some unethical profits. (For the record, I'd close my account immediately if stop-hunting turned out to be a regular feature of their service.) But out of curiosity, would it be possible to identify stop-hunting patterns through careful analysis and place your limit orders at a spot where the broker's likely to spike the price? Or since the broker can see limit orders just as clearly as they can see stop-losses, would the simple act of placing them make the whole scenario unlikely to occur? Stop-hunting turns out to be one of the more popular searches on this blog, which got me thinking if there are any ways to turn the tables on a bad broker by studying their behavior and using it against them. Anyone out there ever turned a profit on a price spike that you knew was a probably a stop-hunt?

Related topic:
So what's stop-hunting, exactly?

So what's stop-hunting, exactly?

When I was just getting started trading forex, one confusing term I heard mentioned frequently on traders' discussion forums was "stop-hunting." When someone finally got around to describing what stop-hunting was, it sounded very familiar: finally those weird, short-lived price spikes I'd see occasionally on my broker's charts made a bit more sense. I was convinced my own stops had been "hunted" on more than one occasion, and I can't say I was too pleased about it.

In a nutshell, stop-hunting is a "sport" (allegedly) carried out by institutional traders at banks and market-makers at retail forex brokerages to drive the price into their customers' stops or the stops of other traders. Since an unscrupulous brokerage can quote its own internal forex prices, it has the ability to move its prices substantially from the normal interbank rates to trigger customer stops. The broker can then perform its own arbitrage with those stop-loss orders by clearing the currency lots obtained in its stop-hunt at a better price with its interbank counter-party. Let's say your stop's set at 1.2855 and the broker can sell that lot into the interbank market at 1.2860 - well, in this loosely regulated market, they might just go on a stop-hunt.

But this is just my own (admittedly limited) understanding of how stop-hunting works. For insight into the sport from someone who really knows what they're talking about, this forum post should be extremely enlightening.

As I've noted in a previous post on setting stop-losses, some traders don't use any stops at all. While this definitely requires a strong constitution and in-depth knowledge of market behavior, it does save you from having to worry about stop-hunting. Personally I think you'd be better off using stops, and just placing them at a price where they're unlikely to be triggered by a stop-hunting spike.

Now, I think I may go reconsider a few of my own stops.