RiskPicksWhat is a Stop Hunt?
A stop hunt happens when price pushes just past a key support or resistance level, triggers a cluster of stop loss orders, and then reverses direction. The move "hunts" the stops, triggering them and converting them into market orders that provide liquidity for larger players to fill their positions on the other side.
How it works
- Stops cluster at obvious levels: round numbers, prior lows, prior highs, and well-known support/resistance levels attract stop loss orders. Everyone can see these levels on the chart
- Price pushes through: whether driven by algorithms, institutional order flow, or just natural market mechanics, price breaks the level
- Stops trigger: all those stop loss orders become market sell orders (for long stops) or market buy orders (for short stops), creating a burst of volume
- Large players absorb the flow: institutions and algorithms buy into the stop-triggered selling (or sell into stop-triggered buying), using that liquidity to fill their own positions
- Price reverses: with the selling exhausted and a large buyer now in the market, price snaps back through the level
How to avoid getting stopped out
- Place stops beyond the obvious level: if support is at $50.00, do not put your stop at $49.99. Give it room, maybe $49.70 or use an ATR-based stop
- Avoid round numbers: $50.00, $100.00, $25.00 are where the most stops cluster
- Wait for confirmation: do not buy at support, buy when price bounces off support and reclaims it. The stop hunt may have already happened
- Use the stop hunt as a signal: a quick dip below support that immediately reverses with volume is often a strong buy signal. That was the shakeout
If your stop gets hit and the stock immediately reverses, you did not get unlucky. You put your stop where everyone else did, and the market moved to that liquidity. Next time, give it more room.