All you need to know about stoploss hunting

stoploss hunting

Stoploss is the order that is placed to exit from trade if it moves against your calculated price levels. It simply protects your capital from being wiped out or reduces the level of loss. You can place a stoploss while trading in equity, futures & options, and varied other financial assets. 

If you are an active trader you might have detected that your stoploss got hit and suddenly the price turned to move in your favorable direction. This condition can occur because of stoploss hunting

Stoploss hunting is a practice that triggers the stop losses applied by retail investors. And this works as a strategy for institutional investors, brokers, and operators to enter the trade at a convenient price point. These statements might be confusing but soon you will sense some clarity after reading about stoploss and stoploss hunting examples given below.

What is a stoploss?

Stoploss is an advanced strategy that allows traders to prevent extreme losses if the price moves against their trade. Example: You bought 1000 shares for Rs.100 each and after making some calculations you expect that the target price for the day can be Rs.108 per piece. And place a stoploss order at Rs.97.


But, due to some unfavorable news, the stock fell sharply and tumble down to Rs.90 during the day. Since you have placed the stoploss at Rs.97 you are sitting on a loss of Rs.3000 instead of Rs.10000. 

It is also helpful for the users who cannot track the market for the entire day. That includes the people who are not trading on a regular basis but are engaged in some professional work. Hence, stoploss order can prevent from bearing heavy losses.

All about Stoploss hunting 

Stoploss hunting is done to build a great trading opportunity by bringing high volatility. This practice is adopted by big institutional investors, operators, or brokers who hold big amounts and are willing to enter the trade at an attractive price. They simply throw small traders out of the game by triggering their stoploss orders. This in turn creates an opportunity for them to make an easy entry. 

The retail traders enter and exit a trade with a strategy, most of them have marked support and resistance level. And their stop losses are mostly placed near or at support and resistance levels that raise an opportunity for big players to turn the trend in their direction.

Example: The support level of the stock you are trading in is at Rs.280 and you have placed a stoploss at Rs.279 and just like you many other traders have placed the stoploss around that price. 

This brings an advantage to big whales to aggressively short the market to bring in at the lower level and seeing the price fall many entrants exit the trade to prevent the losses. But they are unaware that they are indirectly creating a position for institutional or operators to buy big quantities at a very low price. 

And suddenly you will see stock price scaling up to higher levels with a strong volume coming in from the players with big funds. So, this is a straight practice followed in both buying and selling sides of the trade. 

How does stoploss hunting benefit big players?

Some of the major benefits are:

  • One of the major benefits is that it helps the big players like institutional investors to crunch the price levels very sharply. That ultimately help them to buy positions at lower price levels. 

  • Creating an easy entry into the system that was earlier dominated by varied small orders placed by retail investors. Example: Retail investors can easily place their buying or selling orders as they trade in relatively smaller quantities. That leaves very little space for bulk buyers to enter the trade. 

How to protect your trade from being prey to stoploss hunting?

There are no set practices that help you to protect your trade from stoploss hunting since the market is very volatile. And the big market whales such as institutional investors, operators, or brokers hold big funds and retail investors can't challenge them. 

They can switch the momentum of stock with the power of their funds. We as retail investors can only be cautious and track sudden price movements. Along with applying these strategies:

Avoid placing stoploss very close to support or resistance  

From our above reading, we found out that stoploss hunting is done near the support or resistance levels. There are varied tools that can help you in placing stoploss or you can manually place a stoploss by creating a trendline. By fixing pivotal points on these trendlines you can ascertain an appropriate stoploss.

But, the prime point to keep in mind is that the stoploss needs to be placed far from the actual stoploss. Example: Your stoploss placement is at Rs. 200 but to prevent hunting you can place it at Rs. 197, 196, or farther. Keeping the level of loss in your mind. 

Take away

From the article above, we derived some understanding into stoploss and how stoploss hunting works? The reading described how big players like institutional investors, brokers, and operators exploit large funds to switch price movements.

All these topics were limelight with a combination of some easy stoploss hunting examples for a better understanding of our readers.