SUTTS

Thanks Phantom, your help has been invaluable. Great to see an experienced trader giving up precious time to help the stugglers. It took me 4 years to get rid of my stupid indicators but I'll never look back. It's amazing how those wiggly lines stop you seeing what is really going on.

I agree that rapidly moving price can be caused by a thin order book and market orders coming in fast. But stop limit orders cannot have the same price-chasing effect that a stop market order can. The best they can do is help erode a volume barrier at a specific price, allowing market orders to progress further up or down the price ladder as a result. For example: The order book currently looks like this: A $10.05 x 400 A $10.04 x 2200 A $10.03 x 400 A $10.02 x 700 A $10.01 x 500 B $10.00 x 300 B $ 9.99 x 200 B $ 9.98 x 1100 B $ 9.97 x 1600 Current ASK is 10.01 and current BID is 10.00. A BUY stop limit order for 4000 contracts is triggered at $10.01. The only effect this has on price is to eat through the 500 available contracts at $10.01, moving the current ASK price to the next level in the price ladder at $10.02. That's a 1 cent move. Now, let's turn that buy stop limit order into a buy stop MARKET order instead and see what happens to price..... The market order executes and chases price up the ladder to gain a fill. This takes out all the sitting sell orders at the 10.01, 10.02, 10.03 and 10.04 levels and leaves only 200 contracts remaining at the $10.05 level. That's a 4 cent movement in price compared to a 1 cent move for the limit order. Now, say $10.04 was a key breakout level and short sellers have a bunch of stop orders clustered behind this level at $10.05. These are almost certainly buy stop market orders. The last big market order successfully triggers these stops which results in an immediate and massive influx of buy market orders at the $10.05 level. Being market orders, these have no limit on the price at which they will seek a fill. The result of this is a further surge in price up the price ladder, possibly tripping further buy stops higher up. This is the cascading effect that stop MARKET orders have on price. Stop LIMIT orders could not possibly have the same effect since they do not have the capacity to chase price up the ladder. The most they can do is help market orders eat through key levels of support or resistance at specific price levels. They do not cause price to move rapidly.