What is market liquidity hunting? Stay away from these situations!
Imagine you run a bakery 🍞. Every morning, people line up outside your shop to buy bread, but some customers wait in line without buying anything. Why? Because they are waiting for the price to drop. You, as the baker, notice this.
To force them to buy, you pretend that the bread is sold out. You even close the display case and say, “No more bread!” The customers panic, thinking they will miss out, and start paying the original price.
But in reality, you have a secret stash at the back. This strategy allows you to sell at a good price without lowering it.
In trading, market liquidity hunting works the same way. Big players (like institutions) “hunt” for liquidity (capital) by triggering panic buying or selling at key price levels. They know where most traders place their orders and use this knowledge to manipulate the market for profit.
What is average SL (stop-loss) hunting?
Let’s continue with the bakery example. Suppose some customers are cautious and think, “If the bread price exceeds $10, I won’t buy. I will leave.”
As the baker, you understand this. So, you briefly raise the price to $10.50 just to scare them away. Once they leave, you lower the price back to $8 and sell to other customers who came running for the “discount.”
In trading, stop-loss hunting occurs when big players push prices up or down to trigger stop-losses (pre-set exit orders). Once these stop-loss points are reached, they reverse the market to collect profits.
Simplified comparison
• Market liquidity hunting: Big players pretend there is no bread (or increase panic) to make you buy or sell at the price they want.
• Stop-loss hunting: They briefly raise the price to drive away cautious traders and then push the market in the opposite direction.
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