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DEFINITION of 'Stop Hunting'

A strategy that attempts to force some market participants out of their positions by driving the price of an asset to a level where many individuals have chosen to set their stop-loss orders. The triggering of many stop losses generally leads to high volatility and can present a unique opportunity for investors who seek to trade in this environment.

BREAKING DOWN 'Stop Hunting'

Understanding that the price of an asset can experience sharp moves when many stop losses are triggered can be useful when seeking potential trading opportunities. For example, assume that ABC Company's stock is trading at $50.36 and looks as though it may be heading lower. It is possible that many traders will place their stop losses just below $50, at $49.99, so that they can still hold onto the shares and benefit from an upward move while also limiting the downside. If the price falls below $50, traders expect a flood of sell orders as many stop losses are triggered. This will then will push the price lower and give some traders the opportunity to profit from the decline.

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  2. Bracketed Buy Order

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  3. Stop-Loss Order

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  1. What is the difference between a stop order and a stop limit order?

    Learn the differences between a stop order and a stop limit order. Traders use these as stop losses and regular investors ... Read Answer >>
  2. What types of investors are best-suited for stop loss orders?

    Use a stop-loss order to mitigate downside risk. Whether you are a conservative beginner or a seasoned day trader, a stop ... Read Answer >>
  3. How do I determine where to set my stop loss?

    Read about some theories on stop-loss placement and how traders use stop-loss orders to hedge against losses and capture ... Read Answer >>
  4. When should I use a trailing stop order?

    Learn about trailing stop orders, how to use them and when they should be used through an extensive example. Read Answer >>
  5. What's the difference between a stop and a limit order?

    A limit order is an order that sets the maximum or minimum at which you are willing to buy or sell a particular stock. With ... Read Answer >>
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