Stop Hunting In Trading

By | March 13, 2021 6:31 pm

How many times have blamed market operator or FI’s/OperatorI for hitting your Stoploss. How often have you seen price hit your stop  before reversing and going straight to your original target? We as traders have all seen it countless times and wondered whether our broker/FII’s/Operator is hunting stops. The good news, though, is that brokers don’t hunt stops and what you reckon as stop hunting is just your inability to use stops in a reasonable way and apply common sense to your trading.

In this article we’ll show you how the smart and profitable traders mess around with you and how they can easily trick you into taking losing trades.

Common Trading Knowledge About Stop Hunting Is Wrong – Again!
– The more obvious a support or a resistance level is, the stronger and more reliable the signals around it are.
A support and resistance level is confirmed after the third time price comes back to the same price level.
– Put your buy order right at the support level and your stop right below it.

Those are just a few examples of things that you read in trading books or hear from trading “experts”. However, think about this for a moment,If everyone wants to buy at a certain price, who are they going to buy it from? Exactly, you need a seller for every buyer. If the smart and profitable traders want to buy a certain support level but expect the mass of other traders wanting to do the same, they’ll have to find ways to get traders on the other sides of their trades.

Your Broker Doesn’t Hunt Your Stops
Brokers are big companies with hundreds of thousands of clients  They’ll not go after your 1 Lot position. It Human Nature to blame someone else for your Loss.

Only losing traders blame the market, their broker, the smart money, and everything else — besides themselves.

And this is a big problem!

If you blame others, it means you’re not taking 100% responsibility.

The average retail trader will blow their account anyway, so there’s no need for the brokers to engage in illegal activity. If you hear other traders complain about stop hunting, they are either beginners or don’t understand how the markets work.

Mental Stops Are Not The Solution To Avoid Stop Hunting
If you start searching on how to avoid getting stopped out easily, the advice to use mental stops is among the top 5. But please, don’t start using mental stops just because you think that it will make you immune to getting stopped out. Using mental stop loss orders has no advantages over using a regular fixed stop.

How Smart Traders Mess Around With You

How the smart money hunts your stop loss
Here’s the thing:

The market is to facilitate transactions between buyers and sellers. The more efficient buyers and sellers transact, the more efficient the market will be, which leads to greater liquidity (the ease of which buying/selling can occur without moving the markets).

If you are a retail trader, liquidity is hardly an issue for you since your size is small. But for an institution, liquidity becomes the main concern.

Imagine this:

You manage a hedge fund and you want to Short 1000 Lot of Nifty Index. You know Support is at 15186 Previous Day High after Gap up and if you want to enter with minimum Slippage.

So what do you do?

Well, you know 15186  is an area of Support as it was Previous day High and Market Genrally after Gap Up touch previous day High and Bounce back, and chances are, there will be a cluster of stop-loss underneath (from traders who are long NIFTY).

So, if you can push price Higher to trigger these stops, there will be a flood of SELL orders hitting the market (as traders who are long will exit their losing position).

With the amount of SELLING pressure coming in, you could SHORT your 1000 lot of Nifty with this traders. This gives you a better entry price and lower  slippage.

In other words, if an institution wants to long/SHORT the markets with minimal slippage, they tend to place a sell order to trigger nearby stop losses.

This allows them to buy from traders cutting their losses, which offers them a more favorable entry price. Go look at your charts and you’ll often see the market taking out the lows of Support, only to trade higher subsequently.

An example:

2 Triggering Your Greed and Fear Responses
This price behavior is another amateur-trap and it works similarly to the Bear and Bull Trap. But the way it plays out on your charts is slightly different and therefore, worth pointing out.

Let’s say price is currently at 110 and keeps falling towards the very big support level at 100 where you, and probably 90% of all other traders, want to buy. Very often you’ll then see a reaction ahead of the level. When price starts twitching at 102 and starts moving up a few pips, the impatient amateur traders will get very nervous and fear that price has already found support and will take off without them. We traders are a very greedy bunch of individuals and we hate it when price misses our orders by just a few pips. The profitable trader knows this and will use it to their advantage. Therefore, the amateur traders will prematurely pull the trigger and take a long trade even if price hasn’t come to the actual support level yet.

The smart and profitable traders can now drive price further down, generating panic among the long positioned traders and then buy back from them when they exit their trades because they think price is breaking down. The result is similar to the one of a Bear Trap, with the difference that the way of tricking amateur traders into losing trades is slightly different.

How To Avoid Getting Tricked Into Taking Losing Trades
Those are just 2 examples of how losing traders get tricked into making wrong assumptions about price movements, but if you can understand the psychology and thinking behind them, you’ll be able to understand the drivers of price action and the herding behavior in general a lot better.

Tips On How To Avoid Stop Hunting:
Don’t use the obvious levels for your stops. Big round numbers are a very bad choice for picking your support and resistance levels. Stop-loss orders are tightly clustered near rates ending in 00.

So Add Few Points near support level this might save you from being Whipsawed. 

The more people talk about a certain level, the harder it is to profit from it. Like Everyone from Media to Traders were talking about 15000 being big support, Market makers broke that Traders got traped and than they gave a big recovery. 

Get in the heads of the average retail trader. It’s usually very easy to figure out what they see on their charts and want to do. Then do the opposite to add to your Profitablity. 


Category: Nifty Technical Analysis

About Bramesh

Bramesh Bhandari has been actively trading the Indian Stock Markets since over 15+ Years. His primary strategies are his interpretations and applications of Gann And Astro Methodologies developed over the past decade.

2 thoughts on “Stop Hunting In Trading

  1. Panagiotis

    I think there’s a mistake here:

    “Well, you know 15186 is an area of Support as it was Previous day High and Market Genrally after Gap Up touch previous day High and Bounce back, and chances are, there will be a cluster of stop-loss underneath (from traders who are long NIFTY).

    So, if you can push price Higher to trigger these stops, there will be a flood of SELL orders hitting the market (as traders who are long will exit their losing position).”

    For traders who are long to exit their losing position, the price must be pushed LOWER not HIGHER, right?
    I think this is not the only mistake in this example.


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