Stop-hunters: Can They See My Stop Orders?
Day traders or as I prefer to refer to what we do… Intra-day traders, naturally have stop limit orders closer to the market price since they are typically trading intra-day charts and trying to profit from the market using tighter intra-day stops. The market makers and institutional traders love the average intra-day retail day-trader because they give them plenty of stops to “hunt”. Being an intra-day trader and entering a lot of trades each day means it can be more difficult to have a high winning percentage, largely because we get stopped out so much.
Institutional traders have access to information on order flow and where stops are placed; it’s not only brokers who go “stop hunting” but the bigger institutional traders who can “sniff out” where the smaller intra-day traders are placing their stops.
Have you ever noticed how if you try to trade intra-day the market tends to hit your stop and then reverse back in the direction of your initial position?
The more day-trades you enter the greater the risk you run of getting “stop-hunted” by the big boys, seeking out your “point of pain” stop orders.
You never want to give away your trading edge? Well if you are a trader who uses multiple displayed stop orders, you are giving away far to much information to those “big boy hunters” looking to identify your “point of pain” and bringing the markets to that level, sweeping up all those stop order shares, then inevitably reversing the trend, only to profit from the information you eagerly volunteered.
Solution: if you are trading only a few positions at a time and are in front of your trading station, DO NOT post your “point of pain” stop orders. You know what it is and that’s all that matters here. Manage your trades one by one and stop out manually.
Would you play poker with your cards facing up?