When is Stop Loss automatically executed in this case?

[YourFriend0]

Hi,

I would have a question about Stop Loss order - the automated closure of active trading position. It is well known that next candle almost always gets opened on EXACT price level where previous candle closes. But here is one exception: time period where there is no trading. E.g. weekends (except brokers allowing to trade on weekends) and holidays. Perhaps also rare situations of servers being under maintenance. In such cases next candle may necessary open where previous closes but it can either above or below previous one’s closure. This is obviously called a gap.

Lets say I have Stop Loss (or even Trailing order) activated but when trading hours start again, the opening of first next candle goes beyond the Stop Loss. The term ‘‘beyond’’ means downward if I am in Long position or upward if I am in Short position. The unwanted direction. So that the first candle, after a ‘‘break’’ (no trading time), opens on completely different price level than previous candle closes.

My question is: where exactly will my active trading position get automatically closed? Will it get exactly on Stop Loss or Trailing level or on the opening of first candle that occurs after no trading time?

To improve my question further, I am attaching a picture.

Please let me know if your answer depends on anything, e.g. broker, trading instrument (e.g. USA stock, nonUSA stock, material, option, commodity, cfd, bitcoin, currency pair, and so on), which trading asset is being traded etc.

Have a great, happy, healthy and successful new year

Thank you very much for your time.

[A1lenTrader]

If your short then When the ASK price hits your stop it will close your trade
When your Long its when the BID price hits your stop.

"“But sometimes if you have a not so good Broker price move’s fast past your stop loss”"
there are guaranteed stop losses but you have to pay for that in most cases
.

Your trade should now be Closed.
Most brokers would close it next best price

Sorry i may have miss understood have you took the trade after the gap…?

[YourFriend0]

No, I didn’t trade anything here. Just asking in general to see how much worried do I have to be for the cases if gap occurs in unwanted direction. I don’t understand what you are saying in your first paragraph. There is no ‘‘hitting’’ at all as you said.

Such gaps occur when there is a break in trading so where for particular time period prices are not being updated (trading activities OFF). When trading activity is ON, next candle always open where previous one closes. But when it doesn’t, so when such gap occurs, i may have stop loss or trailing stop order between:

the price level wherever trading activities got OFF (temporary not trading: e.g. holidays, weekends) [Location1]
and
exact level where opening of new candle occurs (trading activities start to be back on) [Location2]

The main reason what confuses my understanding is that price doesn’t seem to ‘‘move’’ from Location1 to Location2. Instead price just ‘‘jumps’’ to Location2 and doesn’t seem to touch the exact price level where i would have either stop loss or trailing stop. The fact that there is no ‘‘touching’’ confuses me because i don’t know if in such case trading position will be automatically closed. I repeat again: there doesn’t seem to be any ‘‘touching’’ or stop loss or trailing. The price, when market comes back, seems to just jump (gap) to the new level.

Furthermore I would like to know WHERE/WHEN, at which exact price level, will my trading position get automatically closed: on EXACT stop loss or trailing price level (but how if there is no ‘‘touching’’?) or on the opening of next candle after the gap?

[A1lenTrader]

@YourFriend0

Most brokers would close it next best price

The next best price your broker can close your trade at closest to your stop loss…
OK trading doesn’t just stop when ur chart stops m8 it carries on for a bit but your NOT allowed in OK
so your chart has stopped Price has not OK so it will hit your stop but you won’t see it OK
So i will say again **Most brokers would close it at next best price if not Right on your Stop **
OK

[YourFriend0]

What is ‘‘next best price’’?

Also: are you saying that price is moving from Location 1 to Location 2 (please check my previous message to see what are those two locations) instead of market just being closed and then opens again (gap occurs IF it does)?

If you look at my attached picture in first message unfortunately it is not moving. If it was moving, it would be easy to see the touching/hitting of stop loss or trailing level and my question wouldn’t be necessary.

[A1lenTrader]

There is not enough info on the chart for me to see what your saying
like WHERE YOU ENTERD YOUR TRADE…???
WHAT IS THE SPREAD ?

BUT I WILL SAY AGAIN[quote=“A1lenTrader, post:4, topic:128065”]
The next best price your broker can close your trade at closest to your stop loss
[/quote]

SO IF IT DID NOT CLOSE ON YOUR STOP THEN NEXT BEST PRICE. AFTER YOUR STOP
IT HAS GApPED I KNOW BUT HOPEFULLY YOU WOULD HAVE BEEN STOPPED OUT AT THAT BAR YOU HAVE DRAWN oR NEXT
PRICE CLOSEST TO IT .

[YourFriend0]

With all the respect and my appreciation but honestly I understand nothing what you are saying but thank you anyway.

Hopefully someone else could please answer the actual real question I am asking.

[A1lenTrader]

Yeah good luck with that mate.
have you gone through the Babypips course?

Hold on i know just the bloke @anon81929759

[anon81929759]

@A1lenTrader

@A1lenTrader

Hold on i know just the bloke @Martin_K

LMFAO… hehe
here we go

it’s nice to be loved… huh hehe

WALL OF TEXT hehe

@YourFriend0
Hi mate, i heard my name being called from afar and i came running hehe

ok, so
it’s like this

1. all brokers are different, ok so you really need to ask your broker WHAT THEIR POLICY IS ON THIS

2. I just spoke to my broker (pepperstone) to get the official word

Now. also keep in mind, THIS STOP OUT THING OVER THE WEEKEND… HAS NEVER EVER HAPPENED TO ME

so it does come down to

• Having enough funds to manage your risk
• Knowing which instruments moves how far
  Example… you would be trading bitcoin and putting a stop loss on a long trade that sits at - 30 pips LOL
  because you get a rude shock monday morning when you realize it just moved 400 pips the wrong way

but. YOUR QUESTION IS… WOULD IT HIT THE STOP LOSS

ok
here is your original picture

Your answer is

THE OPEN OF THE NEXT CANDLE

because this is what the broker told me.

Let’s imagine you have an entry point
let’s imagine you are in a BUY trade
let’s imagine that your stop loss is at -40 pips
let’s imagine that trading is closing for the week and there is 1 minute left in the trading week
let’s imagine you now have to go to the toilet to take a number 2 and it’s really hard to push out
(Clearly this is an important point to explain graphically so that the time taken is graphically explained and clearly understood that it’s gonna take longer than 1 minute)

anyway, you come back to the charts, you realize you can’t do anything other than wait until monday morning
(now, let’s leave SPREADS out of it, let’s just assume that the spread for the entire time is 0 pips because our broker is so awesome hehe)

ok. so …
let’s now imagine that MONDAY MORNING… it GAPS DOWN by 80 pips

so… What happens

Scenario 1 - Your stop loss at -40 pips gets taken out and you only lose 40 pips - SORRY, NO, THIS DOES NOT HAPPEN

Scenario 2 - You lose the entire 80 pips - GUESS WHAT… YES THIS IS WHAT HAPPENS

i’ll tell you why
now the broker says THEY WILL FILL YOU AT THE NEXT AVAILABLE PRICE

because a STOP LOSS or a TAKE PROFIT is merely a BUY ORDER or SELL ORDER , depending on how you started the trade
so, if you start a trade in a BUY, Your take profit is a SELL, and your stop loss is also a SELL
if you started in a SELL, well then… your T/P and S/L are a BUY ORDER

and that holds true for pending orders as well

SO. if the next EXECUTABLE PRICE is -80 pips
of THE FIRST EXECUTABLE PRICE for that monday morning … RELATIVE TO , your previous price

then… yeah… UNFORTUNATELY you not only get stopped out, because YOU STOP LOSS IS AUTOMATICALLY EXECUTED

• if in a BUY trade, IF THE STOP LOSS is HIGHER than the current open price, IT WILL TRIGGER THE STOP LOSS

• if in a SELL trade. IF THE STOP LOSS is LOWER than the current price, IT WILL TRIGGER THE STOP LOSS

now here’s the imporant part
YOU WILL GET FILLED AT THE NEXT AVAILABLE PRICE.
Not necessarily IF THE STOP GETS PHYSICALLY HIT

people call this SLIPPAGE

so now the big question is this

Let’s say that you have a certain amount of money in your account balance an you could afford to go -100 pips
before you get a Margin Call (aka 80% Margin Level %)

well then if the price dropped to - 100 pips, you would GET A MARGIN CALL INSTANTLY first thing monday morning.

Now… Assuming price came back up to correct. YOU’D BE FINE
but let’s say that your ENTIRE ACCOUNT BALANCE could only sustain - 150 pips, and at that point you would be at 20% Margin Level % (meaning… YOU’RE DONE and the ACCOUNT IS BLOWN UP)

well. if price went - 200 pips for arguments sake (or , anything lower than 150 pips)
YOU WOULD INSTANTLY BE OUT OF THE GAME AND HAVE NO MONEY
Regardless of where you put your stop loss.

i think this is the answer you were looking for … Right ?

so, how do we protect against this

• have a big enough balance in your account
• Know how your instrument behaves and think of the worst case scenario and then multiply it by 4 or 5 times.
  and then account for that

DOES THIS HELP YOU UNDERSTAND IT A BIT BETTER
so… your answer is…

it would be Auto Closed at the OPEN OF THE NEXT CANDLE - THE NEXT AVAILABLE PRICE THAT THE BROKER AGREES TO FILL YOU AT

be cool

[tommor]

In spread-betting T&C (UK clients), a stop is executed at the price specified by the client or as near as possible if price has moved through the price specified (e.g. if price gaps through while the SB company is closed and their quotes not tracking underlying prices). A Guaranteed stop is executed at the price specified despite any gapping that might occur.

[A1lenTrader]

@YourFriend0

Hope that cleared things up for you mate.

Thanks Martin.

i think it helps if you understand How the orders are processed.

Every time its gaped past my stop on weekends it’s always closed my trade at the stop loss price i set But i know this is not always the case.

[anon81929759]

@A1lenTrader
You’re Welcome mate

[YourFriend0]

Firstly, I would like to thank you a lot to all three of you for your time and effort spent for me. I really appreciate it, thank you.

It would be nice if it always worked like tommor said.

But Marin_K, look… You said the active trading position, if not touching / hitting / reaching either trailing order or stop loss order, gets closed on the opening of new candle after the gap in unwanted direction, regardless of color of candle’s body.

If this is true then loss could be infinite. This is because it is out of my hands whether the gap in unwanted direction occurs and particularly WHERE it occurs. The problem is that trend ‘‘jumps over’’ the stop loss or trailing order line but doesn’t touch / hit it. If it was like tommor said, I could always choose for worst possible case how much am I willing to loss according to the quantity of points. But i cannot know where Will, on the opening of market (the first second), first next candle open. This means if too far away, my balance would be burnt already even if i get, as soon as market opens, position automatically closed.

[tommor]

If your firm deals with stops and gaps kike mine does, as per the T&C I mentioned, then yes, your loss resulting from a gap that goes past your SL could be infinite.

But in practice how often does a gap result in a loss deep enough to blow your account? Risk is also a matter of probability.

In this scenario a lot of people will quote the EUR/CHF crash of 2015. If you had been long going into Thursday 15 January 2015 most accounts without a guaranteed SL would have been eliminated. But no trader should have been long this pair - it was in a downtrend. most sudden downward price moves occur in downtrends: most sudden upward price moves occur in uptrends. So being in cash be effective and free protection when the trend is against you. But do acknowledge that gaps can be positive events too.

[anon81929759]

Firstly, I would like to thank you a lot to all three of you for your time and effort spent for me. I really appreciate it, thank you.

You’re Welcome mate

If this is true then loss could be infinite.

that’s correct THEY COULD BE ,… THEORECTICALLY
but Practially and Theoretically are two different things

Even though it’s POSSIBLE that it would be infinite, you have to ask WHAT IS THE LIKELY HOOD OF THAT

so let’s say the price of EUR USD is $1.20 approx
now if it’s infinite, you are saying that it COULD GAB UP to $1 billion overnight (and even that would not be infinite)
even if it was $10,000
do you know what would have to happen to economies for that to happen.
IT JUST WOULDN’T HAPPEN simple as that

i think the more important scenario is… Not necessarily infinity, but, instead, blowing out the account 100%

and the answer is…
YES IT COULD HAPPEN
but … Having an understanding of how one’s currency works and moves will avoid this
I’ve been trading for 7 years
I’ve gone through BREXIT and i’ve gone through GREXIT would probably be my worst scenario’s
i didn’t blow my account out because …

1. I planned for a worst case scenario. I plan my trades around a concept of , … What would i do if it moved 600 pips
   now… the likelyhood of that happening… hehe… NOT LIKELY
   but i plan for it
   and if it happened i would easily survive it

so yeah. get familiar with your currency pair.

But i cannot know where Will, on the opening of market (the first second), first next candle open. This means if too far away, my balance would be burnt already even if i get, as soon as market opens, position automatically closed.

that’s right and that’s why brokers put up a weasel disclaimer that says… TRADING HOLDS A CERTAIN HIGH LEVEL OF RISK etc etc… blah blah blah.
you hold us harmless etc etc…

NOW Remember,

• This is what my broker told me,
• You should check with your broker as to what the deal is… but, you’ll probably find it’s the same if not similar,
  but check anyway.

[A1lenTrader]

If it does say gap $1000 past your stop and your in a Negative balance your broker should / might step in and Forget about that 1000 so as to keep you as a customer and it was an extreme circumstance. Depends on the broker.
Obviously Scam brokers probably won’t.

[A1lenTrader]

Here’s Pepperstones

But if i went minus 1000 and they wanted it there gonna have to come knock my door for it first lol