I've seen a lot of videos warning about putting the stop loss too tight because there are stop loss hunters (usually big companies with a lot of money).

But I cannot understand how they do that. I mean, they need to move the price in some desired direction.
What are the techniques used for this? And also, are they legal?

  • Certain market participants have access to level 3 order book. If you have that info, why not?!
    – NuWin
    Jun 1, 2018 at 0:00

2 Answers 2


This is best worked through with an example:

Suppose you own 100 shares of ABC co., which you bought today for $900, at $9 each. If you set your stop-loss at $8.1, then a 10% drop in price would force the sale of your shares. If there is low liquidity in ABC Co's shares , then one sufficiently motivated individual could sell enough of their own shares to drop the price, triggering your stop loss order, therefore bringing your shares on the market for a much lower price.

Now let's say there are 500 buy orders listed at $9, and 100 shares are selling at $8.5. If someone wants to 'hunt for stop loss orders', then they could (1) sell 500 of their shares at $9, and (2) 100 shares at $8.5 [this clears the open order book of buy orders]. If we assume the 'real value' of the shares is $9, then doing this only costs the person 100 shares * (9-8.5) = $50.

After selling into the last open 'buy order', the same individual could then (3) put in sell order for, say, $1, and perhaps they would even use another account to put in a mirror order to buy for $1. This sets the new market price at $1. Suddenly (5) your stop-loss triggers, and your shares get listed on the market. The nefarious individual can now (6) put in an order to buy 1,000 shares for $5 each, and in the process scoop up your shares on the cheap (and anyone else who happened to have a stop loss order), and if the true value of the shares is still $9, then they could immediately sell them for proper value, once there is additional liquidity in the market.

Now of course, the example above is quite far-fetched, because it relies on effectively a 0 liquidity stock. This extreme example is done just to highlight the point; the same process could occur with a share trading between $100 and $99, but the gain to the manipulator would then be <1%, instead of >40%. The more liquid the market, the less someone would be able to move the price, and the more expensive it would be to do so (because they would need to eat more orders to buy at decreasing prices, thereby selling more of their own stock at a loss).

There are other similar events possible to be triggered. For example let's assume you have your orders on a margin account with a broker. That means effectively that you borrow money from your broker to invest, with some initial money of your own, and your shares are held by the broker as collateral. In that case, the broker can have the option of selling your shares once the net value of your collateral reaches $0. In such a case, using the example above, if your broker were the one to manipulate the market, then they could more easily achieve the above, because you don't even need to have a stop-loss order in place yourself - your own margin will be 'called' once your share value equals your loan from the broker.

In a modern regulated market, such price manipulation is going to be considered illegal, though it may be hard to detect. In a stock with healthier liquidity (ie: not a penny stock, which might go days without trades occurring), the danger is also lower, as mentioned above. If you trade in something like cryptocurrency, which is unregulated + has many effectively 0 liquidity trading pairs, then something like the above can and does happen regularly.

  • So stop loss hunters exist but they work only in non liquid markets? Do you have an estimation of how much money will need someone to do this on AMZN for example? Because I can see for 1m candles the volume traded is between $10M and $20M. Does that mean if someone has $50M it could move a 1m candle in some direction? And then trigger the stop loss for many people (because if you move the candle near a moving average or support line, the you probably will catch a lot of stops there)
    – Enrique
    May 29, 2018 at 15:57
  • 1
    Stop loss orders DO NOT work in non liquid markets. Because you see a one minute candle that represents $10M to $20M in trading, it's incorrect to assume that this amount "controls the stock." Investors/traders seeking anonymity in the market when they are trying to buy or sell large amounts of all types of securities use hidden orders. If you show up with what you believe to be a large order, a bigger fish may simply suck up your liquidity and price might not change. May 29, 2018 at 16:13
  • @Enrique To add on to Bob's comment here, 'moving the candle' doesn't actually create value for the manipulator. This 'moving the candle' actually costs money, as described in my answer. The potential value exists if the manipulator can then go and buy additional cheap stock [meaning the market must be so illiquid that a single person can do this before anyone reacts], and then they need to be able to sell the stock for more, later [meaning the stock truly is valued higher than what it was pushed down to]. May 29, 2018 at 16:55

Stops trigger for a couple of reasons. First and foremost is that they are placed too close to the market and they trigger because of the trading range of the stock.

Another reason for a stop being triggered is when there is pending news. Traders pull their orders and market makers widen the B/A spread to protect themselves because of low liquidity during the waiting period prior to the news. The result is that spreads widen.

I don't believe that anyone is hunting stops in large cap stocks. The volume needed to move price is too large and there's no guarantee that price won't reverse and result in a bear trap.

For illiquid stocks, it's a different story because it doesn't take much volume to move price. If you're going to play with illiquid stocks, be prepared for volatility. And, they're not good for trading.

AFAIC, you should set your stop loss at a level at a price which executes at your maximum acceptable loss. You made a bet. You were wrong. Book the loss. Move on. Stop loss hunting conspiracies are usually the purview of web sites selling advice.

  • So you said is a conspiracie? At least in liquid stocks? But anyway, what are the strategies used to move the price? Buy or sell a lot? And how much is "a lot" for a liquid market?
    – Enrique
    May 29, 2018 at 15:47
  • 1
    You're familiar with the concept of daily volume and $$ traded per minute so look at each stock to determine what "a lot" is. As for the strategies of moving price, net buying volume raises price and net selling volume lowers price. May 29, 2018 at 16:01
  • 1
    Good answer - I think this highlights that if you are legitimately concerned about such actions, it is a sign that you are in an under-regulated market / dealing in an illiquid stock, and therefore you should avoid entry into that market / stock. May 29, 2018 at 16:45
  • +1 back atcha. I invest/trade low volatility illiquid income stocks frequently. Right now, one that I have one has a B/A spread of 46 cents and I'm the best bid and the best ask. They can take me out for the gain and/or I'll take more at a better price. Should I get taken out, I'll just roll the proceeds into a different issue with a similar yield. It's small potatoes but it bumps up the yield if it hits. May 29, 2018 at 16:57
  • @Grade'Eh'Bacon in crypto they talk a lot bout "whales" moving the market. They say whales can sell a lot to push down the price, generate panic and then buy again at lower price. Also they can put a psychological wall on the order book to (and they remove those entries when the price is close). I was thinking if this is a strategy used in stocks too.
    – Enrique
    May 29, 2018 at 17:32

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