Orders are filled at the next best price where buyers or sellers are present. On a stop run to the upside, it will carry on running upwards till sellers are found. On a stop run to the downside, it will carry on running till buyers are found. There's really nothing more to it than that.
You donít trade the markets; you only trade your beliefs about the markets.
- Van K Tharp
The following user says Thank You to DarkPoolTrading for this post:
I think the difficulty you are having is that you think that every order is filled at the stop-loss level.
Using your example the 1000 S/L orders become 1000 Market sell orders when the s/l price is reached... this means these orders will be sold at the best price that is available.
the other resting 500 orders may be a mixture of Market sell orders (the same as the activated S/L orders) or Limit sell orders which specify what price the seller wants for his units.
These 500 resting orders are in a queue ahead of the activated S/L market orders so if there are enough buyers the 500 resting orders are sold in the order in which they were entered (whether they are Limit or Market type) and then the activated S/L orders start to sell... But if the price falls without satisfying the resting orders... the limit orders to sell are simply not sold unless the price rises again.
the rest are market orders that are sold in order that they were entered and availability buyers at that price level.... not enough buyers? the price keeps falling until buyers outnumber sellers at a given level. (note: other sell orders may come into play as the price falls but their priority falls to the end of the queue.
The only money the brokers get from the traders is the commissions from the sales/purchases of the units (both orders pay commissions) otherwise it is simply a transfer of money from buyer to seller.
The following user says Thank You to Underexposed for this post:
Some of the time they will be a big guy gaming the market doing a "flip" where he buys the market above a level where
stops are likely to be like an obvious high, and then he absorbs the stops above that high, and sells it back down so all the breakout guys puke out their longs and sell, and then the trader will buy back his short for a profit. Usually this will be when the market is rangebound, as if you are doing a flip you dont want to get run over by a trending market. This is stuff I heard from the no bs trading course by John Grady. I personally find that significant stop hunts are good reversal signs of daily momentum and show institutional guys with large orders to fill, and these occur strong s/r levels, I characterize them by a sudden influx of orders driving the market into and they beyond the level, and then have the bids/offers immediately refresh, its really like a spike up or down into the level. The key is that the volumes should be very high, highest of the day or close to that (either on a 1 min, 3 min or 5 minute chart as it happens in a short amount of time). IF you use delta there should be a significant wick on the relevant price candle, it doesnt have to be a hammer, but have a strong down or up candle on the delta and that shows a large amount of market orders getting absorbed. In reality stops are placed everywhere, and not every cluster of stops getting hit is a stop hunt, they can also lead to violent moves up or down.
Understanding yourself is just as important as understanding markets.