When Your Stop Loss Doesn't Execute

[JLJ 10]

I've heard of the risk of a stop-loss order being "gapped through" or similar language. Does this mean when the stock price drops so fast that sell orders aren't executed - i.e., it 's a matter of how _fast_ the price is dropping? Or does it mean that, for my stop loss to be executed, the market price has to hit my stop loss exactly, to the penny? For example, if I've set my stop to $21.20 and the stock's market price drops directly from $21.21 to $21.19 - never actually touching $21.20 - does this mean my stop loss won't be executed?

[Tams 20]

Stop Loss order,

also known as a "stop-market order".

 

the keyword is MARKET...

ie once the price is touched, your order becomes a market order.

 

Touched means trading at OR through the price.

 

ie. if the next trade price is $1.00, your order will be a market order and filled at the next best bid.

[macdfx 10]

In other words, don't use a stop-LIMIT order, which may NOT be executed in a fast moving market.

 

You might be stuck with an unfilled limit order, while the market moves far against you, and "gaps thru" your stop.

[SIUYA 11]

however - just using a stop at market order can also result in some really crappy fills.

Flash crash !

 

there is no substitute for really understanding the system you use, the risks involved with it.

there will be variations between brokers, definitions and your desires.

eg; does the market have to trade below your stop trigger, does it merely need to be offered below, where does the trigger go off, where is the stop order held - on your computer, at the broker, at the exchange?

Ask, ask, and ask again.

[JLJ 10]

Thanks, looks like i need to call my broker and ask. Didn't know it could vary.

[sen5241b 10]

As a previous poster said, even a 'market' stop order has its risk. Imagine a bad earnings report after the bell. The next morning the stock opens at $5 below your stop order. Ouch.

[TEAMTRADER 10]

You may be able to get a guaranteed order from your broker but he will protect himself by increasing the spread by his guarantee premium. You can ask the question of the broker.

TEAMTRADER

Thanks, looks like i need to call my broker and ask. Didn't know it could vary.

[robPeter 10]

What can also happen is that your broker's platform malfunctions and stop orders don't execute when triggered. This was the case recently if you happened to trade the September CL contract through Interactive Brokers. ... Not good.

[brownsfan019 17]

This was my issue with swing trading stocks - you can place your stop loss and assume it will fill there but you really have no idea if it will or not. It's important you understand the mechanics of how these work and how your broker handles them so you don't get caught off-guard.

 

With that said, stops are the only thing that will save you when you are wrong, even if it executes further from where you expected. In daytrading you can assume for the most part that your stops will be honored where you place them if you are trading liquid instruments but position/swing trading is a different story esp in stocks.

[EAS_Trader 10]

I use a method that is based on Activation Rule, it can be set at <=, <, =>, > it does not show up to the market makers, and is based on the stock price, so if the "flash" hits It will get me out at market price on the first trade that is posted. ie I have it set at 23.34 and it drops and post at 23.02 my market order executes, yes not a great system but saves it from getting out at $1.00. Again as everyone says, know your system and your broker.

[phase21 10]

EAS,

 

Can you elaborate on your "stop" methodology a bit further, pls. Your desciption sounds interesting, but I haven't quite grasped the concept.

 

Thanks,

[phase21 10]

JLJ,

 

Sometimes, your stop won't be excuted, even if price trades at or through your stop price - probably something to do with where your order is in the queue. This has happend to me on ES and TF, especially during fast periods.

 

Regards,

[brownsfan019 17]

JLJ,

 

Sometimes, your stop won't be excuted, even if price trades at or through your stop price - probably something to do with where your order is in the queue. This has happend to me on ES and TF, especially during fast periods.

 

Regards,

 

Exactly - when things are moving quickly (usually due to news) or stocks gap overnight, your stop order says 1 thing to your broker - if price touches this level or goes past it, I want out and I want out at the prevailing market price. In a perfect setup that prevailing price is where you thought you'd get out, but not necessarily.

 

You can always send a stop limit order which you dictate what terms you want to exit on however you can be left holding a large losing position if those parameters are not met.

[macdfx 10]

Isn't OEC still holding stops on their server, and not on the exchange directly?

[JLJ 10]

In daytrading you can assume for the most part that your stops will be honored where you place them if you are trading liquid instruments but position/swing trading is a different story esp in stocks.

 

Browns,

It makes sense that your broker's procedures, and of course trading volume, are critical in how your stop functions. But why would it matter if you're swing trading vs. day trading? The system (for lack of a better word) doesn't 'know' whether you've held your postion a couple hours or a couple days....or does it know?

Thanks to everyone for your patient answers.

[SIUYA 11]

as a guess and from my experience.

Futures dont move as much as stocks via gaps from a percentage point of view (exception maybe the equity indexes)

There are many instances of stocks gapping 1-2-3% over night.

Most futures also have a globex session that can help minimise these gaps as well.

 

Additionally - day trading does not have the gaps over night that a style such as swing trading over 2-3 days will have.

[brownsfan019 17]

Browns,

It makes sense that your broker's procedures, and of course trading volume, are critical in how your stop functions. But why would it matter if you're swing trading vs. day trading? The system (for lack of a better word) doesn't 'know' whether you've held your postion a couple hours or a couple days....or does it know?

Thanks to everyone for your patient answers.

 

Simple - overnight gaps.

 

You will not see many intraday gaps if trading a liquid instrument.

 

Swing trading stocks however and you can wake up to a little nightmare...

 

 

 

This is BIDU - if you shorted the close there, you wake up in the hole 8.66/sh. Odds are your stop was taken out even though you probably planned for a much smaller stop loss.

 

You simply won't see that type of a gap on an intraday chart.

[macdfx 10]

Simple - overnight gaps.

 

You will not see many intraday gaps if trading a liquid instrument.

 

Swing trading stocks however and you can wake up to a little nightmare...

 

You simply won't see that type of a gap on an intraday chart.

 

Weekend gaps, notwithstanding. From time to time, you'll see a significant gap on an otherwise liquid instrument due to fundamental reasons, like the 6A (or AD) Aussie dollar contract this past Sunday evening (Monday morning Sydney time).

[Guest lenco12]

however - just using a stop at market order can also result in some really crappy fills.

Flash crash !

 

there is no substitute for really understanding the system you use, the risks involved with it.

there will be variations between brokers, definitions and your desires.

eg; does the market have to trade below your stop trigger, does it merely need to be offered below, where does the trigger go off, where is the stop order held - on your computer, at the broker, at the exchange?

Ask, ask, and ask again.

 

Thanks, looks like i need to call my broker and ask. Didn't know it could vary.

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Reply With Quote

[MetaDavid 10]

Hi, i'm new to this forum, and new to trading so i'm really excited and eager to learn something new, i've got lots to learn

 

If i understood the thread correct, there's a risk of a StopLoss not executing because of where the SL is being held. Let's say for example my platform "holds" the SL information and let's say i'm running a couple of trades with SL's on them and all of a sudden my computer dies, and i'm not at home so i don't notice this. If my trades keep running at the broker, the SL's wont kick in and i will loose money. How would i prevent this from happening? do most brokers inform of how they handle SL's? or is this something i would have to ask every broker before using their system? Anyone with any experience from this type of problem. I hope i didn't confuse you all too much with my explanation.

 

Regards

 

David

[86834 10]

As already mentioned, depends on if it's a limit or a market order. It also depends on the market. For example, if you're trading crude, you need to use market stops instead of limit stops. If you're trading something like ES, you can use limit stops as there is great depth at each price. However, there are certain situations where your stop will most likely get jumped. An example would be doing something daft like putting a trade on 2 mins before a major economic release.

 

I had a trainiee trader once who didn't listen to me when I said don't put a trader on just before a figure. This was last year.... he put a trade on right before consumer confidence came out, which was much higher than expected. He got completely smoked by the market....

[eztraderjr 10]

What can also happen is that your broker's platform malfunctions and stop orders don't execute when triggered. This was the case recently if you happened to trade the September CL contract through Interactive Brokers. ... Not good.

 

I had a similar incident with IB about a year ago. I daytrade, but put in a stop in case of Internet problems. Stepped away and then came back to my trade to see that I had gone through my stop a few minutes previously but no trade executed. The stock (can't remember now the ticker) had plenty of volume so no issues with getting filled and was a tight spread with both bid and ask below stop price. I gave it a few minutes longer since price began to move up again and I also caught a snapshot of my IB screen that clearly showed the stop order with a current price well below so I could send it to IB. Again, this was not an issue of a poor fill or lack of market participants, just no fill whatsoever. When price began to fall again (slowly since it was not a volatile stock) I manually closed and then contacted IB to recoup some money. I clearly showed them that I could have filled at my stop price since the time and sales screen showed many trades at that level. Now mind you, I was not too concerned with the dollar loss since I was testing a new strategy and was only out 12 bucks, but I was very concerned about what could have occurred with a large order and a reliance on my stop.

 

IB refused to refund any money. They blamed Lava and showed me their policy which stated that they were not responsible for any of these losses. I fought a little bit but stopped short of filing a complaint with FINRA or the SEC or whoever it was I could file with. Anyone else have any problems with a stop not being filled? Any recourse taken?

[dorramide7 10]

Hi! I'm from London!

Thanks for sharing this information!

It's great!

[Kojak 10]

In very active markets, where you have large players with automated systems operating, it may be good to have some additional conditions when you put a stop-loss. In these markets stop-losses are almost always triggered by the automated trading systems.

 

You could try using 'conditional stops' which would check for a valid trigger of the stop price. A condition could be based on say, Relative Volumes.

[Chippy 10]

I have a server which never loses internet connection. Costs me $150 a month and is up 100% of the time. For me it has saved my butt many many times. Well worth the $150 if you ask me. Also the server is right on the exchange in NY so the ping rate is less than 5ms giving me better fills (so they say) haha. Anyway, you can pm me if you want any of that info.

 

On the note of the stop order not executed, at least in futures and can still happen even if your stop is with the exchange. Doesn't happen often, but here is what happened to me. I was in Lean Hogs short with a stop of only $200. All of a sudden something happened and there was a huge buy order that went through at market. Well it shot the price up way higher than my stop, the stop market was executed but by the time the stop went to market, it was more than 50 cents higher than where the CBOT set their limits at. Basically the next offer to sell was more than 50 cents higher than the stop so they do not allow the transaction to go through. Hogs went limit up in 1 second and I still had a position on. So basically, even in super fast markets you can get screwed.