Stop-Hunting

What Is Stop-Hunting?

Stop-hunting is a strategy used by larger market participants (like institutional traders or hedge funds) to intentionally push the price of an asset toward levels where retail traders have placed their stop-loss orders, triggering a chain reaction of selling or buying.

How It Works

• Stop-Loss Orders: Many retail traders set stop-loss orders at certain price levels (often at support or resistance levels, or round numbers) to limit their losses.
• Big Players’ Strategy: Larger traders or institutions know where these stop-loss orders are located and might push the price towards those levels by placing large trades or orders.
• Triggering the Stops: Once the price reaches the level where retail traders' stop-losses are placed, these orders are automatically triggered, leading to a wave of buying or selling.
• The Big Players’ Advantage: After triggering the stop-losses, big players can profit by either buying the asset at a cheaper price (if they were driving the price down) or selling at a higher price (if they were driving it up), knowing the market will likely reverse afterward.

Example

Let’s say Bitcoin is trading at $30,000 and many retail traders have placed stop-loss orders just below $29,500. Larger traders might push the price down to $29,490 by selling off some of their Bitcoin, causing these stop-losses to trigger. This causes a wave of selling, which pushes the price even lower. The big traders can now scoop up Bitcoin at this cheaper price, knowing the market may bounce back once the selling pressure stops.

Why It Happens

• Market Manipulation: While stop-hunting isn’t illegal, it's seen as a form of market manipulation, as larger traders exploit the weaknesses in retail traders' strategies.
• Profit for Big Players: By triggering stop-losses, large players can take advantage of panic selling or buying to move the market in their favor.

The Sum Up

In short, stop-hunting is when larger traders intentionally push the price to trigger retail traders' stop-loss orders, allowing them to profit from the ensuing price movement.

On Ouinex we have banned stop-hunting. There’s a Chinese wall so market makers can’t see where you’ve placed your stop-loss orders. Plus, market makers can only make prices, not take them!