Don’t let it happen to you. Use a platform where you cannot be liquidated, even in a sharp move against your position.
The Perils of Stop Loss/Liquidation
It’s a scenario every trader dreads: getting stopped out at the very bottom or liquidated just before the market reverses in your favor. Discussions on X (formerly Twitter) and other platforms buzz with stories of traders falling victim to stop loss hunting — a tactic where prices are intentionally manipulated to trigger stop losses or liquidate leveraged positions.
Stop loss hunting has been a part of the trading world as long as stop orders have existed. My first encounter with this form of deliberate, if legal, market manipulation was on the floor of the Chicago Mercantile Exchange. Back then, orders were physically brought into the trading pit on paper by humans.
My career in floor trading had begun in in the Australian dollar futures pit — a market so simple and, frankly, kind of dumb at that time that making a limited, but relatively low risk living was almost a given. The bid/ask spread presented to customers was quite wide and we pit traders could exit trades in the tighter and more competitive interbank market.
In addition to sending market orders into the pit, unsuspecting customers often placed stop orders to buy just above the prior day’s high or sell just below the prior day’s low. It was so predictable that traders could easily exploit it.
Old Tricks, New Tools
To trigger a stop order on the buy side, if the price was close to the previous high, all you needed to do was bid a bit higher. This action would trigger the stop orders, turning them into market orders to buy. You could then sell at a higher price, profiting from the predictable pattern. You could find yourself on the losing side of the trade, however, if the market kept moving higher.
While the goal remains largely the same, in today’s markets manipulation is driven by algorithms rather than directly by humans. These algorithms detect where traders are likely to place their stop losses or at what price their leveraged crypto orders might be liquidated. With enough capital and speed, these algos can push prices to trigger liquidations, turning those orders into opportunities to buy at lower prices.
If the algos succeed, your liquidation might push the price further down (or up, for short positions), triggering even more liquidations. This domino effect increases volatility, benefiting those manipulating the market while leaving you with losses.
Understanding Market Volatility
Market volatility isn’t going anywhere, nor should it. Humans change their minds in response to price action. So selling on the price drop and buying on the price rally will always be with us.. This behavior contributes to the inherent volatility of financial markets, but it is a necessary part of trading.
However, traders can take steps to protect themselves from being victims of stop loss or liquidation hunting. One effective strategy is to use a platform where you cannot be liquidated, even if the market moves sharply against your position.
A Safer Alternative: Outcome Trading
At Outcome Trading, we offer a different approach. All trades on our platform are inherently bounded, meaning you cannot lose more than you’ve determined at the outset. Even if you’re holding a long position and the market experiences a steep drop, you won’t be liquidated. Your position remains intact, and if the market rallies, you’re still in the game.
This doesn’t mean you won’t lose money if the market moves against you and stays there. But it does mean that you won’t be wiped out by a short, sharp decline designed to trigger liquidations. Your capital is better protected, and you’re less likely to be taken out of the market at the worst possible moment.
Protecting Your Trades
If you’re trading with leverage or setting stop losses on other platforms, be cautious. Stop loss hunting and liquidation are real threats, particularly in volatile markets. But if you want to trade in a safer environment, consider using OutcomeTrading.io, where liquidation isn’t a risk you need to worry about.