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Question about stops for initiating and offsetting positions
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Question about stops for initiating and offsetting positions

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Question about stops for initiating and offsetting positions

I have a couple questions for any professional traders reading this:

I constantly read posts from retail traders claiming that "someone" can see your stops and "hunts" for them with the express purpose of taking you (yes, you personally) out of a trade, then "running" price the opposite way. Now, I understand that it can feel that way if you're inexperienced and are buying/selling the extremes of a reasonably wide range, or if you're playing in chop (such as overlapping price bars around a flat 20-period EMA), but IMHO that's nothing more than opportunistic traders/algos assuming very low risk entries in areas of high liquidity until such time as one side overwhelms the other with a strong breakout.

So my first question is, who exactly can "see" stops? Are there particular entities (brokers, exchanges, floor traders, market makers...) who have access to how many stop orders are at price levels on the other side of the best bid/ask?

If there are entities who have this information available, then my next question is, can they differentiate between stop orders that are placed to initiate a futures position and those that are in place to offset an existing position?

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Stop hunting



rubyslippage View Post
I have a couple questions for any professional traders reading this:

I constantly read posts from retail traders claiming that "someone" can see your stops and "hunts" for them with the express purpose of taking you (yes, you personally) out of a trade, then "running" price the opposite way. Now, I understand that it can feel that way if you're inexperienced and are buying/selling the extremes of a reasonably wide range, or if you're playing in chop (such as overlapping price bars around a flat 20-period EMA), but IMHO that's nothing more than opportunistic traders/algos assuming very low risk entries in areas of high liquidity until such time as one side overwhelms the other with a strong breakout.

So my first question is, who exactly can "see" stops? Are there particular entities (brokers, exchanges, floor traders, market makers...) who have access to how many stop orders are at price levels on the other side of the best bid/ask?

If there are entities who have this information available, then my next question is, can they differentiate between stop orders that are placed to initiate a futures position and those that are in place to offset an existing position?


There are two different cases that make stop hunting possible.


(1) Privileged access to order flow

Non-ECN FOREX brokers: Beware of Non-ECN Forex brokers who have trade desks that trade against their customers. Many retail traders are under-capitalized and use narrow stops. Sometimes the FOREX broker simply needs to widen the spreads during a volatile period of the day to trigger the stops. Also trade desks can temporarily move away their quotes for 5 or 10 pips from market prices.

Market makers: Market makers may have priviliged access to order flow and use that information.

Floor traders: Experienced floor traders have an idea where stops are located simply by watching order flow from the buyside.


(2) Crowding

Traders tend to put their stops below support or above resistance. Often you can tell from looking at the chart, where the stops will be located. The stop hunting is necessary to drive weak hands out of the market. A famous chart pattern that also relies on stop hunting is the 2B-pattern as it was called by Victor Sperandeo.

Due to crowding of stops it is possible to guess where the stops are located without having access to order flow. Trading is a zero-sum game. If you have an idea where the stops are located, you may benefit from this information. I also use an indicator that tells me where to watch for stops.

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