Stop Loss Hunting

18 Jul 2021

Institutional investors have a profound impact on financial instruments prices because of their large volume trading activities. They can greatly impact the price of financial instruments, however making a material impact and hence decreasing liquidity to the point where there may be no one to take the other side of the trade is not something they desire. To fill their large in size orders with better price levels, Institutional investors need liquidity, they cannot just enter a trade at once, but they split trades over time and slowly have to build a position by hunting for liquidity. One of their strategic approach and the best way to get liquidity without making a material impact of the price and get filled in better price levels is Stop Loss Hunting.

A stop-loss order is an order placed to buy or sell a financial instrument when it reaches a certain price with the aim to limit loss on a position or protect profits.
Where do we usually place our stop orders? For a long trade example, usually we set them just below a support level, a trend line, a longer-term moving average, previous day low or a specific ATR percentage etc, which are highly predictable.

Institutional investors simply need to trigger stop loss orders of thousand of traders and since a key level is borken new traders joins by entering positions, making them take trades in the wrong direction, which as a result creates a huge supply with enough liquidity to absorb Institutional investor's demand with better prices

Some examples


Stop Loss houting can be observed frequently

21 Jul 2021

Nota

Thanks to every one who have show interest to this post and the ones who have comented. Form some of the comments, it apears that i was not able to present what in reality i was aiming to present. My bad, probably i did not choose an appropiate aproach and may be i should have explanied differently my experience.

I'll try to rephrase the idea of the post I intended to present, which seems to be somehow disguised. The idea was "Be aware of where you're placing your stop loss oders"

General tend of setting stop loss orders are to set them just below a support level, a trend line, a longer-term moving average, previous day low or a specific ATR percentage etc, which are highly predictable and i have tried to present some of commonly used stop loss areas as examples in the chars included

Be aware that we trade in the same market with big players, where big players simply have access to more valuable information, are armed with teams of experienced investment analysts that allows them to make more educated and more informed investment decisions

Here is another example of the idea




Who have doubted my intent i will encourage them to check my other publications

my educational posts : tradingview.com/u/dgtrd/
my published indicators (all open source and available to everyone) : tradingview.com/u/dgtrd/