A "Stop Hunt" (also called a Liquidity Sweep, Liquidity Grab, or False Break) is when price aggressively moves through a key level—like a Support or Resistance that thousands of traders are watching—specifically to trigger Stop Loss orders, only to immediately reverse direction and leave those triggered traders on the wrong side of the market.
To the amateur trader, this experience feels deeply personal. "The market is out to get me. It waited for me to enter, stopped me out, then went my way. It's rigged!" This emotional response is understandable but completely wrong. To the professional trader, a Stop Hunt is not an attack—it is the clearest signal in trading. It tells you exactly where large institutional players have entered positions. It leaves a footprint on the chart that says: "Smart Money stepped in right here." Once you learn to read these footprints, you can follow them instead of being trampled by them.
The difference between amateurs and professionals is not intelligence or access to secret information. It's perspective. Amateurs see a stop hunt and feel victimized. Professionals see a stop hunt and think: "Perfect. Now I know where to enter."
1. The Mechanics: Why Do They Do It?
Let's debunk the conspiracy theory right now. Major banks and institutions are not looking at your specific $500 trading account. They don't know you exist. They don't care about your individual position. You are not important enough to be targeted personally.
What they care about is Volume. They need to move enormous amounts of capital—hundreds of millions of dollars—and they need liquidity to do it without destroying their own execution price.
If a bank wants to buy 10,000 Lots of EUR/USD (approximately $1 Billion notional value), they need 10,000 Lots worth of Sell orders available in the market to match with. Where can they find that many Sell orders conveniently clustered in one location, waiting to be triggered?
- Retail traders—trained by the same books and courses—place their Stop Losses just below Support levels. "Put your stop below the swing low" is universal retail advice.
- A Sell Stop order (Stop Loss for a Long position) becomes a Market Sell Order when the stop price is hit. Market orders execute immediately at the best available price.
So, the institution (or simply the natural flow of large orders) pushes price DOWN through Support. Millions of dollars worth of retail Stop Losses trigger simultaneously, flooding the market with Sell orders. The institution's algorithm effectively says: "Thank you for your Sell orders. I will buy every single one of them at these discount prices."
Once the institution has absorbed all the selling, there are no more sellers left—they all just exited their positions via stop loss. With no sellers remaining, the path of least resistance is now UP. Price reverses and rallies, often aggressively, leaving the stopped-out traders watching in disbelief as the market goes exactly where they originally predicted—without them.
2. Identifying a False Break (The SFP)
How do you know if a break is real (BOS) or fake (Stop Hunt)? We look for a Swing Failure Pattern (SFP).
The Anatomy of an SFP
- Price trades below a key Swing Low.
- Stops are triggered (volume spike).
- The candle fails to close below the level.
- It closes back INSIDE the range, leaving a long wick.
This is a massive Buy Signal. It shows rejection. The bears tried to push down but were absorbed by whales.
3. The Psychology of the Trap (The Double Whammy)
Stop Hunts are devastatingly effective because they trap two completely different types of traders simultaneously, creating a "Double Trap" that generates enormous fuel for the subsequent move:
- The Early Bulls (Stopped Out): These traders correctly identified the support level and bought it. Their analysis was right—price did eventually go up. But their stops were too tight, placed at the "obvious" level just below support. The sweep triggered their stops, ejecting them from their correct trade at the worst possible moment. They are now out of the game entirely, sitting on a realized loss, watching the market do exactly what they predicted.
- The Breakout Bears (Trapped In): These traders saw price break below support and followed their "breakout trading" rules: "When support breaks, sell!" They entered Short at the moment of the sweep, thinking they were catching a breakdown. Now price reverses and rallies, and they are trapped in a losing Short position that gets worse with every tick up. They have to either cut the loss (buying to cover) or hold and hope while their account bleeds.
Here's why this creates explosive moves: The Early Bulls, now stopped out and angry, watch price rally. FOMO kicks in. "I was right! I need to get back in!" They re-buy at higher prices, adding buying pressure. The Breakout Bears, trapped and losing money, eventually capitulate and cover their shorts—which means buying. Their forced buying adds more fuel. This combination of FOMO re-entries and short covering creates the powerful, impulsive rally that often follows a stop hunt.
4. How to Trade the Stop Hunt
Most traders, once they learn about stop hunts, try to predict exactly when and where they will happen and position in advance. Don't do that. You are not a bank with billions of dollars and advanced execution algorithms. You don't have the firepower to hunt liquidity yourself.
Strategy: Wait for the hunt to happen first, then trade the aftermath. Let the trap spring on others, then follow the footprints.
- Step 1: Identify Obvious Targets. Look for levels where liquidity is clearly resting—Equal Lows are the best targets because they're the most "textbook" pattern that retail traders learn to trade. Triple bottoms, clean support lines, and obvious swing lows are all liquidity magnets.
- Step 2: Set an Alert. Don't stare at the screen waiting. Set a price alert at or slightly below the level. Let the market come to you.
- Step 3: Watch the Reaction. When the alert fires and price sweeps the level, observe closely. This is the critical moment. Does price slice through the level like a hot knife through butter, with strong momentum and closing candles below? Or does it wick below and quickly reclaim, showing immediate rejection?
- Step 4: Trade the Failure. If the candle closes back above the swept level—leaving a long wick below—this is your entry signal. Enter Long with your stop loss placed below the wick low. The wick represents the liquidity grab; placing your stop below it means Smart Money would need to re-hunt that same area to stop you out (which is unlikely immediately).
This approach puts you on the same side as the institutions who just collected liquidity, rather than being the liquidity they collected.
Summary
If you see an obvious level that "everyone" is watching—a clean double bottom, a textbook support line, equal lows—assume it will be broken. The market rarely rewards the obvious trade. It rewards those who understand the game behind the game: the hunt for liquidity.
Stop trying to be where retail traders are. They are the prey. Position yourself to enter after the hunt, when the predators have finished feeding and are ready to move price in the real direction. The wick is the footprint; the close is the confirmation; the move that follows is your profit.