Is stop loss hunting a thing?

Trading
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I keep hearing traders complain that their stops keep getting hit and this is called stop loss hunting - sounds fancy too. Is there any truth to this? One trader I was talking to said this:

There’s one question to which I am not able to find the answer of and it’s very controversial. We all put stop loss to our trades and I have heard and read it many times that the SL orders which are pending before the market, are visible to other traders or so called big players or market movers and they take advantage of that and move the market accordingly and eat the stop losses etc.

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This is one of those conspiracy theories that sounds really cool because of the terminology used but it has no basis in reality. It’s just another one of countless silly things tossed around by novice traders. Most traders have a habit of looking for reasons when a trade goes against them. It’s institutions, algos, big players, LIC or any number of other reasons that are constantly tossed around rather than accepting responsibility for a trade going wrong.

This reminds of this Inneworth post which is particularly apt here:

For a winning trade, it’s easy to explain the outcome with internal forces. We have a natural tendency to build ourselves up and enhance our ego when we win, so it makes us feel good when we do well and believe it is due to our talents and skills. But what about a losing trade? When we lose, it’s also due to our talents and skills, but in this case, it may be a lack of talent and skills. Such a possibility is harder to accept. When faced with a defeat, most people suddenly switch from looking for internal forces to looking for external forces: “The market conditions changed too quickly.

In India, as soon you place an order it hits the exchange where it’s matched. You can check your orderbook and you will see the unique order ID assigned by the exchanges. Unlike the US, where brokers can sell your order flows to firms like Citadel, this isn’t possible in India. So, if you placed a stop loss and it is hit, that means a stock or a contract traded at that price and your SL was hit. You can also verify these trades on the exchange.

Adding to this Nithin had written this here a while ago, but reposting this here since this silly and asinine topic keeps coming up:

This is one of those seemingly technical terms that is thrown around a lot but has no substance. This particular conspiracy theory was discussed on the TV panel mentioned earlier.

I have been in the business of trading and dealing with retail traders for two decades now. I’ve personally interacted with tens of thousands of traders in person, over e-mail, on online communities, and on our very active forums like TradingQ&A, Z-Connect, and Varsity. I can say with great certainty that the single biggest reason why retail traders lose money is by trading actively with no stop-loss to the trading strategy. Many claim to make a mental note of the stop-loss, but only a few actually place stop-loss orders. And the majority of those few who do, cancel or modify as the price starts closing in on the stop-loss. So, in reality, the significant majority never really have a real stop in place when trading. So if there is no stop, what can someone really “hunt”?

Secondly, over 80% of all trades today are on extremely liquid Nifty and Banknifty contracts. Assume Nifty is at 11010, and you get to know that at 10990 there are a lot of stop-loss orders. What can you do about it? Somehow magically take the market down by 20 points, fill those orders, and then take it back up? Even if someone did have deep enough pockets to move the price to a stop, how could this possibly be a profitable trading strategy in a market where there are lakhs of traders with different views, big and small, where no one person can control the direction of the market?

The only place where “stop-loss hunting” or forcing clients out of positions is profitable is again on a CFD / Binary trading platform, where the platform is the counterparty to every client position. The platform can potentially hit any manual stop in place or push the price to the extent where the risk management system auto squares off positions for insufficient margins. This is the reason why most of these platforms give extreme 100 to 200 times leverage to trade.

On a regulated exchange platform, this isn’t possible. Exchanges also have alert mechanisms that trigger anytime the buyer and seller on both entry and exit trades are the same clients. This immediately gets escalated and the broker is required to provide an explanation. There are severe penalties and regulatory ramifications for such activities.

Tick by Tick (TBT) feeds: Finally, stock exchanges provide what is called tick by tick (TBT) data feed where you can track every single order, trade, any modification happening on the exchange. This data contains details of trades and pending orders at the exchange level, across all brokers. So if someone did have a strategy like “stop-loss hunting”, trying to figure out retail orders, etc, the best option would be to subscribe to exchange TBT data feed. It’s quite complex and expensive, but available to anyone, and is offered by almost all Indian and global exchanges.

4 Likes
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No nobody can see your stop losses but the big Institutions have an Idea where amatuer traders must have kept their stop losses.
Due to this people may think they can see it .

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Specially weak holders who are traders . If you use a stop loss you are a weak holder.

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@nithin in one of the threads you said that there is no such thing as stoploss hunting and I thought it so. But sometime back while watching one of the interviews of your brother Nikhil he was saying that there are algos who figure out where the stops are placed and trigger them. Is he correct or you ? If you want I can share the link of that interview he took with Karthik few years back.
P.S On a personal level I don’t care if this thing happens or not but still want to know .

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I never knew “stop loss hunting” was a thing until I saw this conversation between Karthik & Nikhil.

Here is the video at 12:45 mark, Nikhil says , .

… there will be algorithms which pick up stop losses…

Would be good to get more clarification from @nithin or @Bhuvan

1 Like
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I think he is talking in a different context, when you have large orders pending at certain prices, you could have other large volume traders exit/enter their positions and hence triggering the stoploss if placed on market depth. For large volume traders entering and exiting itself is an extremely complex affair. So they might enter or exit if there was enough quantity at bid/ask. But this isn’t really the conspiracy theory around stoploss hunting that is discussed in the thread above which claims that someone can deliberately move the stock price beyond stop losses and then reverse the trend.

By the way, if you place an actual stop-loss trigger order and not a normal limit order to stoploss, the order won’t even show up on the market depth. If you can’t see, what do you hunt? :slight_smile:

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Lets not worry about things not in our control. Lets focus on what is under our control. Have a plan. Trade that plan.

2 Likes
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But spoofing can be done by some big market participants…

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Like this one??

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Anyone can do this, manually one can’t do, we need algos and on our exchanges we have something called order to trade rules which means how many orders can be placed(modified) for 1 trade with out penalty. can check this.

1 Like
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Many peoples say’s this is a conspiracy theory but for me i think stop loss hunting happens, i am posting my experience here that , i think mostly this is done by Algos/HFTs , Many times i observed , experienced , if i place an order , if that stock is on down move , immediately price ticker moves upward & vice versa , some times a single order with single quantity appear 's immediately & price movements stops some times this single order moves quickly , if i change , modify the price till i change deep in to or if i cancel the order. For an example i am posting sample of that type.
PSB

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Some more such instances: Observations: level 3 market depth

May be the term ‘stoploss hunting’ whoever coined it, is either legal robbery, or just a sticker associated with something which everyone knows occurs. Just like the default greasing-of-palms for many govt/public works that we know… from traffic-challans-to-birth-to-death certificates, its upto us to enjoy the ride or keep cribbing (as I do too sometimes)!

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Some times certain things whether it is useful or not immediately needs to bring it to the light , at that time whatever be the color it may looks!!

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I came across a video which gives an example of stop loss hunting happening in Bank Nifty. They mention about institutional players being involved but it being not possible to prove. Given that Bank Nifty contains stocks with very high market caps, wouldn’t it require a lot of money/stock holdings to move the whole index in one go? Also, if these institutional players are repeatably doing something like this, wouldn’t such things get flagged by exchanges/SEBI? The video mentions that institutional investors might be doing this so as to increase the volatility and then sell options to profit from it. But if they are doing something like this, wouldn’t this be similar to the recent Biocon stock manipulation case (aka manipulating prices in the cash market to profit in the F&O market)?