Simple question on stop losses

Hey, I�ve just started doing some back testing with the Cowabunga system on meta trader 4, I can’t seem to enter/exit fake trades on the back tests so I�m just writing down where I would have entered and exited, set my stop loses etc and then pressing play and seeing what happens and recording my results (is this how you’re supposed to back test?)

My question is - when actually demo or live trading will the stop loss order be executed when the upper shadow of the candle stick hits your stop loss or is it where the position closes that it reads it from, I�m assuming it’s the later but just want to confirm.

Thanks
(Great site by the way)

Your stop loss (or any other stop for that matter) is automatically executed when the price hits your stop. When it hits your stop it is not a shadow at that time. It is a candle with no shadow.

Pull up a live chart and set it on a 5 minute/candle. Then watch a few form. See how there is not shadow the first time the candle hits a certain price? If you set up a stop (stop loss, limit stop, etc) when the price reaches that value it will execute your order.

The only time this might not be true is during a volatile market, like when a news event happens. The only reason it won’t execute at that price is that there is to much going on for the software to keep up. Be wary at these times as it will execute your order, but perhaps not at the price you want. Read the school section on trading the news and you will understand this better.

As for setting stops. Just open a demo acct and see how it works. Getting use to the platform is part of the practice you need. Make a trade, then see how it executes, see how it hits your stops and see how choosing different types will work differently (like a trailing stop vs a limit stop). Good luck.

Thanks for the indepth reply kramster, most aprechiated.

Good to know, i really thought it was the other way round! This means I was actually up 38pips instead of down 38 on one of my back tests today so yay!

Have been back testing all day today with the cowabunga system and going to go live on a demo acount tonight with the GBP/USD, quite excited :smiley:

Thanks again

To Sirieth :

Please take note also of your spread when setting a stop loss.

Suppose you are trading EUR/USD with a spread of 3 pips.

You set a stop loss at, say 50 and are going short.

The trade goes against you and closes out at 47. Reason - the spread had to be taken into account.

Depending on your particular broker, different methods need to be used to set a stop loss. :slight_smile:

Hope this helps.

Cheers, that’s something I hadn’t taken into acount :slight_smile:

Yes, your stop loss is set off as soon as the trigger price is hit, not necessarily when a candle closes below it.