A move that pushes just past an obvious level where many stops sit, triggers them, and then reverses.
Stops cluster below recent lows and above recent highs. When price sweeps those levels, the triggered stops provide liquidity for larger players to fill orders, and price often snaps back. Whether anyone is deliberately hunting is unknowable; the pattern exists either way.
The practical response is to place stops where the trade idea is truly invalid rather than at the most obvious tick, and to size so a slightly wider stop still fits the risk-per-trade.
Example: a stock has an obvious low at $40.00. It trades to $39.92, then reverses to $42 within the hour. Everyone with a stop at $39.99 was taken out just before the move.
Original diagrams for the ideas on this page. Illustrative, not real market data.
The bid-ask spread. Buy orders sit below, sell orders above, and the gap between the best bid (50.01) and best ask (50.04) is the spread you pay to cross. Bar length shows the size resting at each price.
Educational only, not advice. Spotted an error? Post in Site Feedback.