What is Market Liquidity Hunting? How do you get away from these situations?
๐Market Liquidity Hunting refers to the practice where large traders, institutions, or market makers deliberately push the price of an asset to areas with low liquidity in order to trigger price movements. They do this to capture profits by exploiting the stops and orders placed by smaller traders in those illiquid zones. In simple terms, they "hunt" for vulnerable price levels where they can cause quick price swings, often leading to significant losses for retail traders. ๐
๐งญHow to Avoid Market Liquidity Hunting:
1. Avoid Trading in Low Liquidity Times: Be cautious during off-peak hours or market openings/closings when liquidity may be thinner.
2. Set Stop Losses Wisely: Place stop-loss orders away from common price levels where liquidity is low or where "stop-loss hunting" is likely to occur.
3. Use Limit Orders: Limit orders allow you to control the price at which you buy or sell, reducing the risk of slippage caused by sudden price movements.
4. Understand Market Patterns: Learn to recognize patterns that indicate potential liquidity hunting, such as sudden sharp price movements or wicks/spikes on charts.
5. Trade with the Trend: Stick to established market trends, as trading against them increases the risk of getting caught in volatile liquidity hunting zones.
6. Stay Updated: Be aware of significant news or events that can lead to sudden price swings and create opportunities for liquidity hunting.
From the overall perspective, it is concluded that market liquidity hunting is when large players manipulate prices to exploit retail traders' orders in low liquidity zones. Avoiding this requires smart risk management, understanding market behaviour, and staying vigilant during volatile periods.
