What is Market Liquidity Hunting? Get away from these situations!

Imagine you’re running a bakery 🍞. Every morning, people line up outside your shop to buy bread, but some customers keep standing in line without buying anything. Why? Because they’re waiting for the price to drop. You, as the baker, notice this.

To force them to buy, you pretend to run out of bread. You even close the display and say, “No more bread left!” Customers panic, thinking they’ll miss out, and start paying the original price.

But in reality, you have a secret stash in the back. This tactic helps you sell at a good price without lowering it.

In trading, market liquidity hunting works the same way. Big players (like institutions) “hunt” for liquidity (money) by triggering panic buying or selling at key price levels. They know where most traders have placed their orders and use this knowledge to manipulate the market to their advantage.

What is Average SL (Stop-Loss) Hunting?

Let’s stick with the bakery example. Imagine some customers are cautious and think,

“If the bread price goes higher than $10, I won’t buy it. I’ll leave.”

You, as the baker, figure this out. So, you briefly raise the price to $10.50 just to scare them off. Once they leave, you lower the price back to $8 and sell to other customers who come running for the “discount.”

In trading, stop-loss hunting happens when big players push the price up or down to trigger stop-losses (pre-set orders to exit trades). Once these stop-losses are hit, they reverse the market to collect profits.

Simplified Comparison

• Market Liquidity Hunting: Big players pretend there’s no bread (or increase panic) to make you buy or sell at their desired price.

• Stop-Loss Hunting: They spike the price briefly to knock cautious traders out, then move the market in the opposite direction.

This is how smart money operates in trading—by using tactics that take advantage of retail traders’ fear and overconfidence.