September 18, 2016

What is Liquidity hunt? and stop hunting?

....... say you are from ABC institutional desk and you have goals to acquire 10,000,000 shares of Nifty Futures by today at a better net execution price. However market is bullish and there is no enough demand from the sellers as the market sentiment is highly bullish and buyers are dominating and it is practically impossible to get instant liquidity from the sellers.

One way is to acquire slowly and steadily from the market but the problem is you may not get a better effective net price. Alternatively one has to identify where could be the possible maximum sellers liquidity so that big players can drive the market towards the zone (also called as stop hunting) to and get the liquidity.

How by driving the Market Lower you get sellers liquidity?

There are various ways to manipulate liquidity. One of the easiest way is most of the intraday players/positional players have a habit of placing their stop loss at days low, days high, prev day high/low, weekly high/low zones. Possibly the buyers who entered in the market at the market open and the one who entered late seeing the breakout rally would believed that Current Day’s low or Prev Days High or 3 Day high as a potential support zone.

More over many participants those who are watching from outside who wants to enter shorts are the ones who wants markets to break those support zones........

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