Hi,
I've never actually seen a stop hunt, but I've sure seen a lot of people calling normal price discovery stop hunting.
I need someone to explain this to me because I don't quite get the logic of it. I'm not trying to be a smart-arse, I just don't follow why anyone would benefit from intentional stop hunting.
So in order to run a bunch of stops, you need to be a fairly big player in the market, because you might need to push through several hundred million of orders in order to get to these stops.
So you've taken on a large position in the worst possible place, you are long at resistance or short at support (why?), but luckily you run into these delicious stops to close out your order.
The stops likely amount to a similar size to the several hundred million it took you to get there. Some traders won't have a stop loss that you can get to which should balance out because some will be for traders that entered earlier (whose orders you didn't have to push through), but surely you are not hitting the stop orders of all the people who are long above this support (for example), only the retailers and uninformed 'pro's', who make up only a few percent of the market and use tight stops. This is the point where maybe I'm getting it wrong, so let me know.
Does closing out a large position at market not bring you right back to the starting point of your stop-run? Shouldn't closing this position run price back the opposite way to what you want?
My point being, you now have to close say 300 mio on top of the original amount you wanted to fill.
This seems illogical, why make your starting position worse in order to get the stops of some insignificant retailers? You will be fighting the market, because you are trading at price extremes against the majority.
If you are not at price extremes, then it isn't really a stop hunt is it? More likely it's just a bad place to buy/sell in the first place and the order will be stopped out by normal market action. |