long tails on candles

[johnlvs2run]

AUY had a long tailed high/low candle just before closing today,
that was totally out of line with the open/close and the rest of the candles.

I've seen this happen quite a few times in midday, not just before closing,

Why does this happen, and is there a way to prevent running of stops when it does?

 

[Splitlink]

I'd like to advise you on that one, mate, but it might be wrong and cost you money, so take what I say with a pinch of salt. I suggest that these are spikes caused by stops getting triggered in both directions.

The problem is how to deal with them. I treat each one differently, depending on what I am trading but I like to see a bar complete and move on to the next one before taking action. That means getting the feel of, and using, a 5 minute or lower timeframe, even if you normally use a higher one, because the pain level in watching a 30' bar complete is very high for me. If it is going higher and was not a spike, we need to know as soon as possible.

Coming to a personal decision on what consists of a pinbar could help in eliminating some of them. Have you gone through TD's thread on pinbars? That might help. By themselves, though, they do not work, IMO, and the lower the TF the more there are.

Split

 

[0007]

AUY had a long tailed high/low candle just before closing today,
that was totally out of line with the open/close and the rest of the candles.

I've seen this happen quite a few times in midday, not just before closing,

Why does this happen, and is there a way to prevent running of stops when it does?

This can be a problem - the most important thing to recognise is that it happens: in many ways the reasons are immaterial. What we have to do is have a way of dealing with it.

I agree with Split - need to watch a short timeframe. I cope by keeping my stops wide enough to allow for spikes - which then means if you just leave the stops to be triggered you can have a larger loss which is not what you want. I regard stops as an emergency safety net to safeguard me when my brain goes into stupid / break-my-own-rules mode. I therefore place my stops at sensible "just outside" relevant support /resistance but get out of a trade early if it isn't going the right way - no point in waiting for the stop to trigger if you know it's a duff trade. If the trade is progressing nicely then spikes don't worry you. It took me some time to realise that although placing stops too close will stop you losing money it also stops you making any.

The other use for spikes is that I find they can help with improved entry / exit - which is why i watch a 1 min timeframe at those times. If you can assess the direction of your trade with a high % probability then spikes cease to worry you - that's my experience.