Originally posted at forexfactory on Jan 9, 2011
Thanks to all the replies, it’s getting a bit clearer From the respones I was wondering:1. Is it correct to assume that stop hunting (not by retail brokers) are done mainly or exclusively outside of the London and U.S. trading sessions as these may tend to be more illiquidity, and thus better odds of succeeding?…
1. Stop hunting can occur at any point in the day. I have seen stop hunts occur during London U.S. session, as well as during late NY sessions, as well as Sydney session, Tokyo session.
The London session and London/NY overlap is the most liquid obviously so if they are hunting stops it requires a larger order, but usually hits a larger size of stops, but also potential for hitting larger standing limit orders as well.
Just because stops are tripped doesn’t mean that someone hunted them. They could of been tripped for a large number of reasons unrelated to people hunting them.
I have seen stop runs/cascades of 5-10 pips and 30 pips or more during London/NY session, but also seen same stop getting tripped of 5-10 pips and 30 pips or more during illiquid sessions too. It just depends what is going on in the market. It depends how the market is positioned, what their emotions are, what their sensitivities are, what their expectations are, what the order flow book looks like, what the liquidity situation looks like, what mood the hunters are in, what the other market participants are doing, etc.
There are stop hunts that occur both during liquid and illiquid sessions that are both high probability. I could also show you examples of both that are low probability for any number of reasons. It just depends what is going on in the market.
Trading isn’t some rigid game with strict rules, its more of a fluid thing. Human beings have emotions that can change sometimes quickly, sometimes slowly, sometimes in an average time. It just depends what is going on.
Heck I have even seen stops getting tripped when a bank executed a much larger order than they wanted to by mistake. By the time they figured out their mistake, the damage had already been done to the order flow book/liquidity structure.