Stop loss hunting (stop runs)

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    Stop lossesStop loss hunting (also known as “stop runs”) refers to a situation in which some market participants attempt to manipulate, or push, the price of an asset and drive it to a level where other participants have set their stop losses.

    When the price reaches these levels, these stop loss orders are triggered and market volatility increases. This can present opportunities for some investors, because driving the price into stop losses means that the those that have open trades, and are on the right side of the price movement, will profit even further.

    How does stop hunting work in practice?

    For example, if a company has shares worth $100, but it looks as though their value could increase further, many traders may buy the share and opt to set their stop losses just below $100.

    If the price falls instead and those stop losses are hit, the high number of sell orders will push the price even lower under continued selling pressure.

    If you are in a position to estimate where those stop losses are and you have the power to influence market direction, then it would be possible to sell a large quantity of these shares in order to drive the price down and into the likely stop losses that are placed there; profiting from this downward market move.

    When stop loss hunting does occur, it is usually orchestrated by large institutions which are in a position to influence market direction.

    To learn more about stop losses, visit our lesson:

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