Stop Orders: Creating Liquidity Against Yourself?!

[CyJackX]

I don't buy any of the tin-foil hat conspiracies. At least, none that can be conceptualized easily enough.

If each and every big player wants their own slice of the pie, how profitable is moving the market, effectively risking exposure, in order to grab it? I think we forget that such manipulation will expose the sharks to other sharks, especially if everybody has the same idea.

A puts a stop below support, to prevent catastrophic loss.
But, B shorts until they break A's stop, because they want A's commission (illegal, if they're the broker) or just to get the rush of stop losses.
But, C takes the opposite of all of B's trades and has more money, and now B is massively short in a market that is going upwards on C's pushing.
D anticipates C and...etc.etc.etc.

It'll be turtles all the way down.

Suffice it to say, I think this sort of speculation is not useful and implies more malice in the system than the simpler, but unsatisfactory, answer that most of it is just chaos-driven.

P.S.
The idea that a broker will hunt YOUR personal stop-loss is obviously a moonshot.
The idea that a broker will hunt a CLUSTER of stop-losses is a little more believable, but still not thinking the idea through.
If you looked at all the stoplosses a broker had, it'd probably look akin to a DOM. Many orders extending in every direction...and that's nothing to base a decision on, on its own.
And always, if there's any direction price is supposed to go...wouldn't it be there already?

 

[comagnum]

Stop gunning is not a conspiracy - all you need is a commercial size account to do this in the thinner hours like the lunch hour, pre-market, and after hours. HFTs pick of stops all day long in the smaller time frames while a hedge fund may go after the stops clustered over a few days below a channel. Even though this video is not on stop gunning. the principal is the same - the market can and is moved by larger players all the time. Doesn't mean every stop out is caused by manipulation, but if you park your stop in a clustered areas you will get picked off.

 

[CyJackX]

Stop gunning is not a conspiracy - all you need is a commercial size account to do this in the thinner hours like the lunch hour, pre-market, and after hours. HFTs pick of stops all day long in the smaller time frames while a hedge fund may go after the stops clustered over a few days below a channel. Even though this video is not on stop gunning. the principal is the same - the market can and is moved by larger players all the time. Doesn't mean every stop out is caused by manipulation, but if you park your stop in a clustered areas you will get picked off.

Given this easy knowledge, couldn't a smarter firm make money off the stop gunners?
Given this knowledge, wouldn't stop hunting's edge be arb'd away?

 

[vanzandt]

Hey Keith...
Maybe I'm over-simplifying this, but why don't you just place a "conditional order" if your trade platform allows you to?
Say Micron is @ $19.08 and you want out at $18.82. You can set your conditional order to trigger at that level, and then code it to "sell" at a limit of say 18.74. I have found that when you place a limit order to sell below the current trade price, you will always get the trade price. IE you could put in whatever limit you want, say $18, and you'll still get the market of $18.82 or wherever its at if it crashes through that level. Its basically a market order and it fills first. By using the "conditional order", no one see's your intentions until it hits your trigger. Just a thought....

 

[kmiklas]

Hey Keith...
Maybe I'm over-simplifying this, but why don't you just place a "conditional order" if your trade platform allows you to?
Say Micron is @ $19.08 and you want out at $18.82. You can set your conditional order to trigger at that level, and then code it to "sell" at a limit of say 18.74. I have found that when you place a limit order to sell below the current trade price, you will always get the trade price. IE you could put in whatever limit you want, say $18, and you'll still get the market of $18.82 or wherever its at if it crashes through that level. Its basically a market order and it fills first. By using the "conditional order", no one see's your intentions until it hits your trigger. Just a thought....

Thx Vanzi, I didn't know that this order type existed!

 

[vanzandt]

Thx Vanzi, I didn't know that this order type existed!

Thats what I'm here for.

 

[comagnum]

Given this easy knowledge, couldn't a smarter firm make money off the stop gunners?
Given this knowledge, wouldn't stop hunting's edge be arb'd away?
_____________________________________________________________________________
Good questions - any trader, big or small, can try to follow the stop gunners - this activity leaves tell-tale foot prints but it still takes some uncommon skills to follow them because they are very good at shaking out would-be followers by causing wide volatility spikes to get the HFTs and day traders to get out for a while. You see this action on the evening futures markets when a defined channel sets up to pick off longer term participants stops. Under normal conditions the HFTs are working on the shorter time periods picking off the weaker day/night traders in the smaller time frames. DOM traders know this game all to well - it is a matter of the more capitalized and better traders running over the weaker hands - big fish eat the little fish 101. This game has gone on for centuries - the players adapt to the technology and markets, but the games have always existed. In 90's it was the market makers like Goldman dropping the axe to capitulate day traders trying to follow the big money. The better traders would get to know the market makers game for a specific stock so well like the lunch hour stop picking and shadow them making a lot of fast profits. You could get to know their games so well you could tell when they went to the bathroom. The HFTs games are just a faster version, they also leave major clues if you study the bursts of volatility - it is very symmetrical. Better DOM trader make a living by following them around or making a market themselves.

 

[CyJackX]

You could get to know their games so well you could tell when they went to the bathroom.

That sounds like an interesting line from an autobiography. What's the story on that?

In any case, I still don't think it makes an easy case for stop gunners being the boogieman if we consider every other player in the market wants a slice of the same pie.
Surely, stop gunners also end up making bad trades, and somebody preys on the stop gunners.

Also...personally, I usually base my signals off of reversions, so stop-gunning would benefit me; I usually have my limit orders underneath support, etc. Surely I can't be the only one.

In fact, there's probably an entire market full of people like me who put their limit orders where others puts their stops...

 

[comagnum]

An autobiography (LOL). It is just the way it was day trading in the market market/specialist era. A specialist made the market for a few stocks and the day traders mission was to learn how to get around the axe and shadow the stop picking and assorted fake outs. The stop gunners are the informed and capitalized traders that pray on the opposite. The stat's shows the tier-1 HFTs win every single day. The stop gunners are not in the business of losing - they are very good at what they do because they are making the market during these stop raids and will back off if they see size moving in that will not yield when they put on more size.
When those channels stack up to many clustered orders they will go and get every single stop on both sides - every time. It's usually done through London in the evening.

 

[Steve Ladd]

Considering stop orders forces you to conceptualize the "market maker." I view it a black box consisting of many computers with many smart people behind them. Is it better to maintain stop orders or exit manually when your method says to do so? Most stop order fulfilments are disadvantageous (you wish you hadn't sold at that time), but sometimes they save you a lot of money by protecting you in the desired manner. Remember to consider the possibility of crashes of a type you haven't experienced yet! In a flash crash a stop order could kill you because price pops right back up. But in a crash that stays a crash it could save your ass. My guess is that whether to use them is more or less a wash, actuarially-speaking. Depends on how you prefer to manage risk. If you use them, limit orders may be an improvement, but it's also more complicated. I usually don't maintain a stop order but I haven't developed a global policy yet.