How do you handle a spike?

Had a nice little short going, riding it down for a few days and manually bringing down the SL. Then bam. Get shafted.

Does anyone not use SL because of this? Maybe use "mental" stops? Or smaller position size?

I am a newbie - but this is not the first time it's happened to me...

as it happend.

Shorted on the 19th @ 6208
by the 25th had a SL of 5950 (this morning)
my broker only got me out @ 6286
Of course, had I not sold, would have been sitting in a decent profit...

Spikes usually occur when there's high impact fundamental event, such as the US Non-farm payrolls being announced. I follow the forex calendar closely and I try to avoid during those periods.

Apart from that I'd recommend using a smaller lot when trading, as well as patience.

Spikes are annoying when they happen, but they happen. I prefer to use a hard stop rather than a mental one because it would really harm my account if what I thought was a spike was actually a huge rally...
If I get stopped out due to a spike, I will just leave it at that and wait for the next entry. You still caught some of that move, just bad luck you got stopped. Try to find another entry. The fact that spike has a huge shadow shows a lot of downward pressure to me.

From your chart shot I cannot tell the instrument that you were trading. Could you clarify? Spikes, and how to handle them, will differ depending on what you are trading - an individual stock, an index, a currency.

Whenever a spike does occur, I like to investigate it to understand what happened, and secondly to identify whether it's potential a data issue from your broker, on which the broker may make you good.

options-george said:

From your chart shot I cannot tell the instrument that you were trading. Could you clarify? Spikes, and how to handle them, will differ depending on what you are trading - an individual stock, an index, a currency.

Whenever a spike does occur, I like to investigate it to understand what happened, and secondly to identify whether it's potential a data issue from your broker, on which the broker may make you good.

Click to expand...

Coronation Fund Managers Ltd (JSE:CML)

spike likely caused by CML related news release (D)

http://www.google.co.uk/finance?chd...Ohlc&q=JSE:CML&ntsp=0&ei=m-TQVqHmEomFU4LhvsAO

Spikes are one more reason why I gave up trading individual stocks and went into forex.

I don't hold with deleting stops ever, but its sometimes good to temporarily cancel the limit order, say overnight or across weekends and holidays, so that a spike would not close me out when I believe the trend should continue much further.

This particular spike is obviously verifiable but when spreadbetting I have had money refunded to me by the SB firm when the spike was down to their faulty price data inputting, rather than an actual movement of the underlying market.

Cheers for the responses - pretty sure that article was not the reason for the spike. In a nutshell, the article is just saying Sygnia is more open about their remuneration policies than Coronation - Coronation have not been that open about it, but that story broke a while ago. Own shares in both of them in my long term porfolio - so keep an eye on both of them.

Anyway - have ditched SL's for now. Instead I draw two lines at my mental stop points - the first is discretionary, the second is mandatory. It did work on Friday where another spike would have taken me out far above my SL on another share.

BTW, have no problem with my SL getting taken out - have a huge problem that it takes me FAR above the SL, just to retreat back to my previous position within minutes/seconds.

I am still very much a newbie, but have been "taught" a few lessons in my first 2 months of trading. Maybe this is just a new lesson waiting in the wings! But on paper, I think I will loose more money to these spikes hitting my SL's than than a share moving 10% or so on bad news.

But sure, would rather have guaranteed SL's - but my broker does not do them but only charges 0.1% in and out, whereas IG that does charge 0.2 in and out plus 1% for the guaranteed stop - way to hefty for me at this time.

Anyway, I just keep trucking and see how it works out - after 6 tough weeks have definitely seen an improvement in my trading the last two weeks.

tomorton said:

Spikes are one more reason why I gave up trading individual stocks

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what he says

tomorton said:

Spikes are one more reason why I gave up trading individual stocks and went into forex.

I don't hold with deleting stops ever, but its sometimes good to temporarily cancel the limit order, say overnight or across weekends and holidays, so that a spike would not close me out when I believe the trend should continue much further.

This particular spike is obviously verifiable but when spreadbetting I have had money refunded to me by the SB firm when the spike was down to their faulty price data inputting, rather than an actual movement of the underlying market.

Click to expand...

The problem with spreadbetting stocks/indices is that overnight the firms can easily manipulate the prices- as there only guessing on whats happening.Therefore they like to take prices to extremes to hit peoples stop.This is why is mad really to hold spreadbets overnight with spreadbet firms-Forex is a different matter as u can alwways know the real prices as they trade 24 hrs a day?? So spreadbet firms cannot fiddle these prices? Opinions anyone???

macbund said:

The problem with spreadbetting stocks/indices is that overnight the firms can easily manipulate the prices- as there only guessing on whats happening.Therefore they like to take prices to extremes to hit peoples stop.This is why is mad really to hold spreadbets overnight with spreadbet firms-Forex is a different matter as u can alwways know the real prices as they trade 24 hrs a day?? So spreadbet firms cannot fiddle these prices? Opinions anyone???

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Agreed, that's one more reason I ditched stocks and indices.

Actually, even if the prices offered at the open turn out to be very close to the underlying, the extent to which the SB firms can widen the spread can make it very likely close stops will be hit when the mid-price chart shows prices nowhere near the stop level. It seems that the adjusted spreads are not quoted or charted anywhere and the SB firm puts no limit on how wide they MIGHT push it. There's no end of times I have had equity or FTSE100 positions closed at 3 minutes past 8 am when the EOD underlying chart shows price never anywhere near.

But stocks are too unpredictable anyway, no matter what access you use.

purple_turtle said:

Had a nice little short going, riding it down for a few days and manually bringing down the SL. Then bam. Get shafted.

Does anyone not use SL because of this? Maybe use "mental" stops? Or smaller position size?

I am a newbie - but this is not the first time it's happened to me...

as it happend.

Shorted on the 19th @ 6208
by the 25th had a SL of 5950 (this morning)
my broker only got me out @ 6286
Of course, had I not sold, would have been sitting in a decent profit...

Click to expand...

Yes, this is in the same vein as to why I dont use stops anymore, spikes just make it more obvious .
Had you a limit to sell at 5950 instead of your stop to buy, youd have likely been filled at or near 6286. With a limit, youd have been seeking value. With a stop, youre seeking the opposite of value, which is what you got, when your stop got filled.

Trade long enough, and providing youre mentally open to some degree, at some point youll realise that although you are trading the market to some extent, what youre really trading is yourself, or rather, the sum of your fears. Most 'fear' being dominated by the market, but unaware they are being dominated by themselves → their fear.

Have a read. Enjoy.

That's a good point against using stops, but I still can't make myself do it. I'm too paranoid I'd lose control over my trades if I do, in case something happens to my Internet connection or account connection.

sitting on spikes can be painful

Spikes

purple_turtle said:

Had a nice little short going, riding it down for a few days and manually bringing down the SL. Then bam. Get shafted.

Does anyone not use SL because of this? Maybe use "mental" stops? Or smaller position size?

I am a newbie - but this is not the first time it's happened to me...

as it happend.

Shorted on the 19th @ 6208
by the 25th had a SL of 5950 (this morning)
my broker only got me out @ 6286
Of course, had I not sold, would have been sitting in a decent profit...

Click to expand...

I think that it is essential to use Stop Losses but spikes are annoying. My approach if the SL is triggered is to immediately re assess the position.
It could be the opportunity to re establish the trade but with new goals or one could conclude that the original trade was a mistake and simply swallow the medicine and wait for another day.

regards

TraderGeoffrey said:

I think that it is essential to use Stop Losses but spikes are annoying. My approach if the SL is triggered is to immediately re assess the position.
It could be the opportunity to re establish the trade but with new goals or one could conclude that the original trade was a mistake and simply swallow the medicine and wait for another day.

regards

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i do think the s/l is essential .Spikes do happen and its just part of trading.You cant do anything about it.

itspossible said:

i do think the s/l is essential .Spikes do happen and its just part of trading.You cant do anything about it.

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One can trade currency pairs and other instruments where spikes usually happen less often - not like EUR/USD, for example - but that's about it, really.

Spikes happens during the news release, so it's better not to trade at that time. Even if you had any position open, best is to trail that position to protect from spikes instead of hitting SL. Simple.

5 minutes before news release & 5 minutes after the news release is the most spikey time....so be careful...

sun11 said:

Spikes happens during the news release, so it's better not to trade at that time. Even if you had any position open, best is to trail that position to protect from spikes instead of hitting SL. Simple.

5 minutes before news release & 5 minutes after the news release is the most spikey time....so be careful...

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Well, on the other hand if you get to know someone from news service, you could very well benefit from it. I wonder if lots of people use this hint.

I have started trading FX - something I never thought I would do. But I really do need stops - the mental stops just didn't work, no surprises there I guess!

Today had a big "spike" - but it seems getting out at your SL is no problem - there is just ton's of liquidity.

And just to reiterate - it's not so much the spike that's the problem - it's having the SL trigger, but with no liquidity, only getting filled far from the original SL. That's was my problem.

purple_turtle said:

I have started trading FX - something I never thought I would do. But I really do need stops - the mental stops just didn't work, no surprises there I guess!

Today had a big "spike" - but it seems getting out at your SL is no problem - there is just ton's of liquidity.

And just to reiterate - it's not so much the spike that's the problem - it's having the SL trigger, but with no liquidity, only getting filled far from the original SL. That's was my problem.

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Plenty of liquidity with forex.SL no problem.