Stop loss hunting

I recently saw an Interview of Nikhil Kamath , Nithin Kamath’s younger brother.
He said using a stop loss is a prudent decision but comes with its own disadvantage of the possibility of sophisticated algos taking out your stop loss order before the market changes direction.

So is it true , Stop loss hunting does exist and is an active strategy used at the institution level?

If yes , then how can we avoid it?

If no , then why all the confusion built around this myth of stop loss hunting?

Thank you.

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Stoploss orders are liquidity levels for them(institutions), act as a magnet. No one has a perfect solution to that. You can use ATR according to your timeframe to avoid 50% hunting.

If you putting a sl at a lvl which is nt getting hit in paper trade, thn it wont get hit in real trade also. Bt your strategy shld support n rr shld atlst be 1:2

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How can SL orders be tracked ?
They are the trigger pending orders .
They come/ reflect on the market only when the trigger is hit .
Unless and until the trigger is hit ; the SL orders don’t show up neither on the bid side nor on the ask side.

So ; i doubt ; except your broker ; no other people can track your orders …

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So in paper trading I don’t get stopped out unnecessarily then even in live trading I won’t face that problem ?

@zerodha : am i right ?

Stop-Loss Orders are basically Market Orders irrespective of SL (Big range between trigger & limit) or SLM because of the Trigger Price.

Stop-Loss oders also don’t reflect in the Oderflow window (bids & asks).
@siva or @nithin Can you please clarify this?

I should think so.

I might b wrong bt have been doing paper trading for a while nw n once in a while it feels tht stock came down just to hit my sl n went back up …i put sl acc to the price bars size of current day (with only current day on screen in kite) + nt too short (giving enough space) n double trgt n it worked fr me till nw. N it feels it shld work in real trading also

N also little below latest support lvl so 3 things

There is always been complaint that the users SL gets hit even though the price as shown in kite chart did not reach Stop Loss level, and the reason mostly given by brokers is that it is impossible to record all the tick data’s generated at exchange. Ways to deal with this is not to put Stop loss in your broker account but manage on your own either by your code (if you code) or at third party softwares. So, if you using kite data feed and unless the final data reaches your SL point, your system would not trigger Stop loss order.

No, they won’t.

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Whatever it is the trade will happen on exchange, there is no way anyone can meddle with that, in US or other developed countries there is no need for the trade to be executed on exchange, it can be diverted to HFT firms, dark pools exist and broker can be counter party etc but in India it is mandatory for all the order to be placed and executed on exchange. All trades will come with trade number given by exchange. People should be more educated in terms of this. One can place sl orders upfront and there is no valid reason to doubt on this.

It was just an alternative suggestion. Both the methods have their pros and cons.

Your broker will always have the info about the stop-loss you set, because you send the orders through your broker (the only medium available to you).

Even if the trade is mandated to get executed at the exchange, your set stop-loss value can still be used by a market maker employed/working on the broker side to get a trade executed at your set value. They may know things/moves better than you - so if the market is about reverse, they can use it to their advantage.
Even if it is a small chance, it can still be a problem for illiquid instruments where there is a dearth of buyers and sellers.
This is not specific to one particular broker, but to the overall ecosystem in India.

The only way is to not set the stop-loss, watch the market moves, and only then place the orders.

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These are all fake theories, don’t believe in them, few traders who lose money will try to blame their loss on some imaginary stuff instead owing it to their trading plan, one can improve themselves only if they admit there is some improvement is required to their trading plan, if not they keep on losing and trying to blame it on someone else.

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hmmmmm… with algo trading, possibilities are endless, so nothing appears impossible or fake :slight_smile:
Stoploss orders are vital pieces of information - brokers have access to them so possibility of utilization (with/without algo trades) cannot be ruled out.

US/UK markets have this issue and is well acknowledged, so no wonder any other markets across the globe (including ours) cant have this.

Anyways, the original question posted by @Karan23 was about how to avoid the possible stop-loss hunting.

So the simple answer is - the ecosystem exists “as is”, and if you suspect SL hunting, avoid putting SL order. Watch the market and then place one. :+1:

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I have tried experimenting with these SL orders on BO only.

Basically I place an MIS order at the same value as the BO stop loss order and sometimes just 5 paisa lower than the sl.
Both mis and bo-sl are in the same direction.

I have noticed that many times only the BO stop loss is executed, but my mis is left untouched.

This experiment is for those orders that did not print in the intraday chart.

Please try out yourself and see if it’s making sense.
I have also seen that whenever I place a limit order at a low point it is untouched, but try placing a Buy using sl limit, the order gets filled.

Again keeping in mind the edge of the bands only.

Anyone interested in trying out please use small quantities only.

It doesn’t matter if your sl is at the support or below it, it’s bound to be taken.

I always use SL because a small loss is better than a sudden reversal and a big loss

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Perfectly mentioned. I have taken the hit on stoplosses in USA stocks trade.

With PNB, Karvy, ICICI scams happening openly in india, the possibility cannot be ruled out that this stoploss infomaton cannot being used for personal benefit by ppl having access to it.

SL details access ; only your broker can have .
None other .