How to Hunt Stops like a Professional
By Dale Pinkert
Many years ago, as a runner on the Exchange trading
floor, I would hand deliver orders to different pits
for them to execute by members. Little did I know,
these orders, or as traders called it "paper",
was the locals meal ticket to feed off, especially
those with STP at then end.
These stop loss orders would accumulate at certain
price points, technicians would use for protection
to manage risk and liquidate a position moving against
The advantage for those in the pit was, traders talk,
and many knew where the stops were, knowing that when
these stops hit, a burst of additional buying (buy
stops, short covering) or selling (sell stops, liquidation)
created the game "Stop Hunting", flush out
weak longs and shorts.
In fact why not attempt to drive the market to trigger
these orders, buying the market into buy stops and
then a new burst of buying comes in, to sell into.
This is a common method, and the reason why you'll
find yourself short in a trade, only to get stopped
out and see the market continue in the direction you
were going in the first place. For institutional traders
it gives them a better entry on their short, flushes
you out and they make money on the way up too.
I believe this happens electronically in the currency
trading markets, with large commercial banks assuming
the role of the floor traders.
How do we compete with big bankrolls like theirs,
why not view your charts and diagnose significant
highs and lows where conventional traders are placing
their buy and sell stops, then attempt to position
yourself in the direction of the stop hunt or wait
for them to be elected and fade the price action.
Now that John Q. Public is stopped out of his long
or short position the market may resume the trend
John Q. was positioned for without him.
Best of luck in becoming a Currency Trading Vulture
yourself, better than being the prey.