If I see a trade stop out at a price that is not within a candlestick body or wick, is that an indication that the broker is stop hunting? Or some other nefarious broker chicanery?
Hi CP,
Was this a short position? If so, have you taken into account the bid-ask spread?
Most forex charts default to showing you the bid (sell) price in the market. However, if you have a short position, then it is the ask (buy) price that will trigger your stop. The ask price is higher than the bid (chart) price due to the bid-ask spread.
Jason - Thanks for the reply. Yes it was a short on a 1m tf. I was experimenting with very quick scalping on a demo account to no real loss.
I think I have the gist of what your saying. I will have to cogitate on it a little bit. Are you saying I should set my chart to show ask on shorts?
Jason is spot on looks like you got hit on the spread. In scalping its a very important thing to watch out for
If you intend to set your stops very close to the current market price, then yes, the bid-ask spread is something to keep in mind. While some platforms like Trading Station will let you switch your chart view from the default bid (sell) prices displayed to a chart of the ask (buy) prices, other platforms will not.
One thing I feel the need to warn here as Jason does point out that the tradestation platform will let you view charts in the bid or ask price quotes which is very nice I must warn as a scalper this may or may not actually be of any benefit to you. I am not a scalper so my thoughts may be garbage but I will point them out anyway and let you do what you will with it. As a scalper you have a very limited amount of time to enter a trade so you really will not have time to switch from a bid (sell) chart to a ask (buy) chart to be effective. You most always have that in mind no matter what chart you are looking at. Spreads are always going to be there when you enter a trade and when you exit regardless if it is a stop, take profit, or manual exit. It is something you must always figure into your trade plan and even though you can never be sure of the exact spread of exiting a trade when you enter it you can have a good idea as long as you are not trading any major news events.
Actually I think with fxcm they do offer an account with fixed spreads so you can know the exact spread on entry and exits. I dont use that account but I do think it exists which might be of your benefit as a scalper.Jason will know a lot more about that which they offer than me. I am just trying to make you aware that as a scalper (again I am not a scalper so my knowledge is lacking in this department) spreads are your biggest hurdle more so than the market itself.
To clarify, FXCM does not offer any accounts with fixed spreads. That’s because our prices reflect what’s available in the market. With the No Dealing Desk (NDD) forex execution we provide to all Standard accounts (5k minimum opening balance) and Active Trader accounts (25k minimum), we offset each client order one-for-one with the best price available from competing liquidity providers. We use the same base price for DD execution on Mini accounts ($50 minimum) before adding the spread markup as the base price we use for our NDD execution before adding the commission. That’s a key reason you can have confidence trading with FXCM regardless of the account type you choose.
By contrast, a broker that offered a fixed spread would be taking the market risk of any spread widening upon themselves. In order to mitigate that risk, such a broker might quote a wide fixed spread and/or requote their clients rather than fill them at price that would result in loss for the broker. Either way, this would be problematic for scalpers, so variable spreads are preferable, even if it means they can widen.
Since my original post I have noticed this happening on the stop and the take profit and on longer time frames. Once I exited (for a profit) 26 PIPS above the top of the wick and at the time the spread was under 2 PIPS. It was on a 1 hour time frame.