Have you ever been stopped out by stop hunters?

rad14733

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As the title implies, this topic addresses being stopped out by bottom-feeding stop hunters... I waffle back and forth with using hard stop losses simply because I have seen stop hunters hop over dozens of higher priced orders and stop me out... I'm talking about at least three or four higher price points with multiple contracts each being skipped over and remaining in place long after I've been stopped out... It's almost like they start at the bottom of the Active Trader dome ladder and work their way up rather than down as is customary logic...

So due to this happening all too often I tend to skip using stop loss settings, which inevitably results in losses bigger than desired... So yesterday I tried a few trades in an effort to get my trading confidence back and guess what happened... A stop hunter stopped me out and left the price points above me untouched... There's just no winning when the system is stacked against you... Everybody says you're crazy to trade without a stop loss yet when you put one in place some thief takes advantage of your cautious trading...

Does anyone know of a solution to this other than babysitting every trade every minute of the trading day...???
 

Alex

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Some of it is definitely true... Personally I feel more comfortable trading with a set defined risk and let my system and edge play out over the long run despite those occasional stop hunts.
 

zeek

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2019 Donor
Use a trail stop, that way you can still keep some profits and not give it all back. As long as there is enough stop liquidity sitting there waiting, big hands will always take advantage of this and chase the liquidity so using stops is a must but i don’t like to give back too much so trail stops is the best option IMO.
 

rad14733

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@YungTraderFromMontana and @zeek

Thanks for the replies... I have been considering both of the methods you have described... Just need to keep the stops hidden until they trigger...

@Alex

I hear you on the risk factor... On the profit side it's far better to have a preset limit rather than chasing profits all the way to realized losses... Sell on the rise rather than trying to catch a falling knife...

I guess my biggest gripe is that nobody should be able to override the way the trading system was designed... Nobody, not even a market maker, should be able to forego the status quo and stop someone out by hopping over other trades... Nobody like line-jumpers...!!!
 

DPM

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@YungTraderFromMontana and @zeek

Thanks for the replies... I have been considering both of the methods you have described... Just need to keep the stops hidden until they trigger...

@Alex

I hear you on the risk factor... On the profit side it's far better to have a preset limit rather than chasing profits all the way to realized losses... Sell on the rise rather than trying to catch a falling knife...

I guess my biggest gripe is that nobody should be able to override the way the trading system was designed... Nobody, not even a market maker, should be able to forego the status quo and stop someone out by hopping over other trades... Nobody like line-jumpers...!!!
First and foremost, what are you trading? The "skipping" of order levels sounds more like the low float penny stock world than it does futures. If that's the case you can use a trail stop but I think that behavior is par for the course with the pennies.

If you're trading futures or stocks like AAPL etc, getting stopped out in what's perceived to be a deliberate stop hunt is definitely annoying. It used to bug me as well so I wound up trying to understand it better.

I'm not an expert in market liquidity, but this is what I remember finding:

Stop hunts are predominantly just institutional buy/sell patterns. Ie, when large orders need to get filled they go to the pools of high liquidity, which is usually where most of the retail stops are set. So let's say you're long. The price drops enough to clear out most of the retail stops. It even continues to drop a bit more, only to swing right back up and rise to your intended target. So was that a "stop hunt" or just a large order being filled? I believe it's a large order in most cases, especially if the drop doesn't result in a major trend change and the original trend resumes. (see imagur link). The only way I know to sort of beat this is to get better at identifying the minor AND major support levels before entering a position. And if the risk reward is there, place my stop below the major support.

RgTa2ey.png
 

surferdude

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It's happened to all of us. Not sure what timeframes you're trading on and what your average hold on a position has been in the past but sometimes when I trade the ES on the m5 I'll look at the 1000 tick chart to see how those how those price points are moving and will sometimes establish a stop based on what the ticks are looking like. Trying to find that fine line between setting a stop that's too close in thus possibly getting triggered right away and one that's too far away to make the risk/reward unjustifiable is a constantly evolving game. Who wants to set a 5pt stop on 1pt scalp?
 

rad14733

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I primarily trade call options along with a few puts and am usually the only order at the position I get stopped out at but none of the orders above or below mine reduce at all in size so it's not a large institutional trade or all orders would get swooped up... I've seen stop hunters drop down a good 4 - 8 points below current trade price and leave perhaps 10 - 30 orders at multiple price points untouched... And Time and Sales shows only my trade being recorded... I even got paranoid and started thinking that TDA/TOS had their own traders trying to eat through my trade balance it was becoming so prevalent...
 

DPM

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I primarily trade call options along with a few puts and am usually the only order at the position I get stopped out at but none of the orders above or below mine reduce at all in size so it's not a large institutional trade or all orders would get swooped up... I've seen stop hunters drop down a good 4 - 8 points below current trade price and leave perhaps 10 - 30 orders at multiple price points untouched... And Time and Sales shows only my trade being recorded... I even got paranoid and started thinking that TDA/TOS had their own traders trying to eat through my trade balance it was becoming so prevalent...
I don't trade options so I have no idea how that ladder behaves. Sorry to hear it though.
 

rad14733

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@rad14733 -- I'm curious which options you're seeing this in
I primarily trade AAPL, AMD, GDX, GLD, MSFT, MU, NIO, QQQ, ROKU, SPY, VXX, WMT... It happens with pretty much all of those and more... It's not like it happens only with obscure securities... I rarely walk away from an active trade so I've witnessed most firsthand, otherwise I'd never know...
 

tradebyday

Active member
@rad14733 You are being stopped out because options spreads are more dynamic than the average asset. Literally end of day the bid-ask spread can grow to 10x larger than normal right before close. Also options ladders are not nearly the same as other assets. If you have a stop loss order sitting, your broker-dealer or a market maker has someone willing to buy at a given price close to your stop loss, they'll meet your price to gain the contract to immediately sell that contract to the new buyer, pocketing the bid ask spread. Since options liquidity is so variable you honestly have no control over that. They move it to where the orders sit, and your stop loss is an order on the books. So in order to fix this issue I'd recommend changing your options strategy as you are not using them as they were meant to be used. In reality options should only be purchased with the acceptance that if you lose, you're ok for that contract to go to zero. Only reason to cut an options position early is to take early profits or if the price action has made it statistically impossible to take profit. Stop loss was not created to be used with options. Does not mean you can't use a stop loss but you have to understand that the tools are being used in a way they were not intended and the risks are going to be like that.
 

rad14733

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@tradebyday

So you're trying to say that the Active Trade Dome Ladder is worthless...??? That it's ok to jump over other trade orders randomly without moving the actual ladder price down...???

I understand options and actually wrote stock trading software close to 30 years ago that a hedge fund manager used to manage his fund and it was based on options from the satellite feed and even had my own $495/mo dish feed on my roof as well... And much of the profits were made by trading options like stocks... It's just one method of implementing options... It's not that I don't understand the stock market, I'm just pointing out that something is happening that shouldn't be happening... Not crying sour grapes because I had losses, but that they were losses that shouldn't be taking place...

I guess you'd have to experience it in order to understand what I'm saying...
 

codydog

Active member
@rad14733 --Lots of folks, me included, day trade options for many years. Its nothing special to do that. I would consider checking to see who tos is selling your order to and which exchange your order is placed on. Most ladders etc are consolidated feeds so "skipping" other bids/asks although you see it that way, it may not be happening from a MM perspective. And dont @ me about NBBO stuff, good luck getting anyone to enforce it for you.

You dont know whats in the data stream that wraps your order that tos sold.. I also agree that options spreads can widen to hit spreads etc, so, no lack of games to play. But I kinda doubt anyone is gunning for your order specifically, unless you're trading in the 50-100 lots,are you? One issue in trading names like amzn, is that the underlying spread can widen unexpectedly, causing the options spread to widen as well.

One experiment you can try if this really bugs you, is to figure out your rough delta hedge and instead of leaving a stop for your option, leave a stop in the outright to see if it gets filled .
 

rad14733

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@codydog

Trust me, I'm watching and will be documenting any new stops but I won't be placing any today... I should probably make the exchange visible in my Time and Sales and maybe that will tell me something... I'll be automating my stops soon via conditional orders anyway... Just need to decide the upside strategy I plan on using... Thanks for your input...
 

tradebyday

Active member
@rad14733 I did not say the dome ladder were useless entirely, nor that you lack any experience in trading. I merely wanted to point out the issue you're dealing with stems from the asset class of options itself. Generally when I respond to things, even though I directed it at you, I try to respond in a way where anyone that may know less on the subject will also gain some insight if they are reading from the sidelines. It helps keep the chats less chopped up with repeated questions or long chains of short responses. Most things stated by anyone on here is mostly rooted in an opinion or bias (myself included) as unless someone takes the time to gather data on the issue and discover correlation factors I will say not say my word is fact , nor the end all be all. That being said, order jumps can occur real time in FX, stocks, and futures just like what you're experiencing in the options ladder (just happens less often as I am sure you are aware with all your time spent analyzing and coding stuff for the markets). I would suffer similar issues with NinjaTrader trading futures (for me it was a data feed issue) but I have heard from others of orders being skipped when a large move occurs like snap. In Ninja normally you just don't get a fill at all and you're left sitting there wondering what happened. If a similar occurrence happens in TOS, you get filled at best available price past your stop loss which is a life saver in most assets, but not so much in options. Since options premiums can change at the drop of a hat (even the most liquid names are not safe from this) there can be a rapid widening or a simple spread skip. I call those "Fat fingers" because they remind me of the random "fat finger" candles that seem to appear out of nowhere claiming a fill at an obscene price on TOS charts from time to time. But as quick as it occurs it seems premiums go back to where they were. I can say I have not nearly as much experience as you in trading, but I do recognize the changes that have been occurring in the markets the last 2 decades (even longer if you wanted to trace the history of some the greatest but oldest tools) and how the tools we use, the assets we trade, have all been changing greatly. The glorification of day trading, and trading in general, have led to changing how we interact with the markets, and in my opinion has led to the over-exhausted bull runs that seem to never end, with some help from the Fed of course (but won't complain about that since it is great for our retirement accounts). The inefficiencies are plain as day in each tool and asset class as each year passes. An old tool is still a good tool, but requires more touch and experience to use an old tool to tackle a new age job. That is why people create new tools to tackle new problems, to lessen the learning curve. But to take an old tool and use it like a new tool can lead to mistakes if not taking into account where the inefficiencies exist. Options trading is no different

Sorry to get preachy at the end haha...
 

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