Stops: the hidden fuel of the market

Stop orders are not visible in the book, and yet they are among the most influential orders in the market. Every open position generally has a stop somewhere. These stops pile up in the same places, because most traders learn the same placement rules. When price reaches one of these zones, the stops suddenly turn into market orders: a burst of aggression that owes nothing to any opinion about the market.

Experienced traders call these zones liquidity pockets. A big player who wants to buy a lot of contracts without pushing price up needs sellers on the other side: a cascade of sell stops provides them all at once.