Crypto stop hunting is a strategy used by some people to force other market participants to lose their positions by moving the price of an asset to one where they placed their stop-loss orders. Usually, crypto traders add stop loss orders, as a way of reducing their potential losses on their portfolio.
People know this, and may try to drive the price to reach a level where stop loss orders cluster.
When a lot of stop losses are triggered at the same time, it could throw the market into volatility, and offer whales the opportunity to trade as they deem fit.
When this occurs, it usually ends up in the value of the asset reducing drastically, allowing whales or investors to buy it at an affordable value.
Stop-loss order is a way of reducing potential profit by telling a crypto exchanger to sell their token at a price. If the crypto reaches that price, it is converted into a market order, then the crypto is liquidated at the next available price.
Most crypto exchanges, especially centralized exchanges come with the stop-loss order option. This type of crypto order is meant to reduce the losses made by investors on both a long position and a short one.
Some people spend time stop hunting, and this can be quite easy if you know what you are looking for. Downside stop losses may be found in a large number in the tight band that is below the resistance, while the upside stop losses can be seen slightly on top of the support.
Some traders get involved in stop hunting on the downside using a short position. As always, before you make a decision in crypto trading, be it stop hunting or setting a stop loss order, it is important to do your due diligence.
