Rogue trades and Stop losses

[FetteredChinos]

would you be complaining if you were short and that was a limit order to snaffle a profit?

no, probably not.

these things even out over time. you just have to bite the bullet and live with it.

 

[kenhetherington]

would you be complaining if you were short and that was a limit order to snaffle a profit?

no, probably not.

these things even out over time. you just have to bite the bullet and live with it.

I dont know whether I made this point, but just to be clear. Limit orders by Etrade are not treated in the same way. In fact I had exactly that experience last week. A rogue trade on AUN should have triggered a limit sell order at a good profit but it was not activated, because "there was insufficient liquidity". So its one sided.

But yes I am complaining because it seems to me that these rogue trades which are relatively common make trading highly unprofitably potentially even when you judge the trade successfully.

Everyone has to judge what is important, but for my money I want an apparent transient and spurious price that potentially will cost me a lot of money, to be ideally reviewed by a human being and filtered out, rather than being traded automatically or a system that can differentiate rogue prices from genuine ones.

It is not beyond the wit of man to find a solution to it. And it should be even handed. If limits turned out to be equally profitable as stop losses were unprofitable due to rogue prices I would be more philosophical.

I am used to high risk in trading, but I want to keep to normal risks, not the risks of some clumsy person executing a trade that causes me and others to suffer as a result.

Ken

 

[FetteredChinos]

ok, well why didnt you set your stop-loss wider then? no-one forced you to put it there

the point im making, is that this industry is largely crooked anyway..

you need to find a way to neutralise the usual tricks that are employed.

 

[SOCRATES]

But my overall focus is learning and the future.

I have learnt that the risks of having such a mechanical and rigid system vastly outweigh all other issues as far as I am concerned.

These are the two key sentences in your post.

I agree that being stopped out on rogue data is a frustrating nuisance.

When you begin, and start trading at a mechanical level, (which you have to ) the insertion of stops is crucial. As you gain mechanical proficiency your selection and timing improves.
It may now be prudent for you to use tighter stops, taking into consideration the nature of the instrument you are trading. The benefit is to minimise your losses and maximise your gains.

When rogue data appears, unfortunately it serves to knock out your stop.

Now, when you evolve as a trader, you will develop a feel for what is going on. You will be able to recognise what is rogue data and what is not. You will be able to confront what is presented and deal with it. You will be able to see beyond the price action. At that level, stops are kept in the head and executed immediately if they are touched for a valid reason, and rogue data is just ridden out, because it is recoginsed immediately for what it is.

But you ought not to abandon your current stoploss policy and replace it with the mental version until you are ready.

Also you ought not to abandon your current stoploss policy because of these infrequent events. You ought not to be persuaded to abandon what is prudent for what is not.

I trust that what I have explained to you is helpful.

Kind Regards,

 

[kenhetherington]

Hmm. Just pulled off the time and sales from Comdirect

08:01:44 460.50 3,000
08:01:29 450.00 2,000
08:01:19 444.00 1,609
08:01:19 455.50 66
08:01:11 459.00 4,970
08:01:11 459.00 4,100
08:01:10 459.00 8,946
08:01:08 459.00 11,054
08:01:05 458.82 5,000
08:00:43 464.00 0
08:00:43 464.00 56,229


Looks like someone hit the bid for real when the spread was wide.
If so, then a trade is a trade.
Glenn

Glenn. The trade you highlight was the one that closed me out (virtually all of my position)! And the first one, of 66, was the first trade that eTrade did when the stop had been hit. So they traded 66 and then 1609. Not a good move.

Whatever the details here, it is clear that it wouldnt have happened if the stop had been reviewed prior to actioning. Whilst you might say its bad luck, looking at market action tells me these things happen frequently and I need a system that will respond appropriately in my own interest to spurious prices.

This even has taught me that the system eTrade has is inappropriate for my needs.

Its one of those learning experiences. I leave readers to draw their own conclusions in relation to their own circumstances.

Ken

 

[kenhetherington]

These are the two key sentences in your post.

I agree that being stopped out on rogue data is a frustrating nuisance.

When you begin, and start trading at a mechanical level, (which you have to ) the insertion of stops is crucial. As you gain mechanical proficiency your selection and timing improves.
It may now be prudent for you to use tighter stops, taking into consideration the nature of the instrument you are trading. The benefit is to minimise your losses and maximise your gains.

When rogue data appears, unfortunately it serves to knock out your stop.

Now, when you evolve as a trader, you will develop a feel for what is going on. You will be able to recognise what is rogue data and what is not. You will be able to confront what is presented and deal with it. You will be able to see beyond the price action. At that level, stops are kept in the head and executed immediately if they are touched for a valid reason, and rogue data is just ridden out, because it is recoginsed immediately for what it is.

But you ought not to abandon your current stoploss policy and replace it with the mental version until you are ready.

Also you ought not to abandon your current stoploss policy because of these infrequent events. You ought not to be persuaded to abandon what is prudent for what is not.

I trust that what I have explained to you is helpful.

Kind Regards,

Yes I agree with virtually all you said. I intend to keep my stop loss policy.

However. I do not agree that these are infrequent events. I regard them as a lot more serious than a nuisance too.

What I plan to do is to change broker so that mechanical systems do not bring about losses like this. Whilst this is not a disaster for me, it is an unecessary loss as far as I am concerned. It is the second time it has happened to me with eTrade. In both cases they did what they claim on the tin, but I am not sympathetic because if as I believe the case to be, these events happen frequently, ( I have watched many myself when I was looking at stocks to trade but was not in them. So there has to be a way of filtering out rogue trades. Otherwise money is just being wasted.

So for my needs a less mechanical stop loss system is what I want. I am fully aware that stops are never going to be perfect. There is the conflict between setting them tight and being stopped out unnecessarily, and setting them too wide and taking big hits. But I am not talking about this here. Namely I am talking about completely spurious trades that appear like a bolt from the blue and turn profit into instant loss, leaving you with a loss and the price instantly back to where it was prior to the rogue trade.

Incidentally eTrade do not have a system for alerting price triggers other then their stop losses etc. So its not possible to take off a stop and rely on an online alert from them even if I was so minded. I could do it with advfn or comdirect alerts etc, but for now I will just pay particular attention around the opening till I close my open positions with eTrade.

Ken

 

[SOCRATES]

OK, I understand. Let us know how you get on.

Kind Regards.

 

[kenhetherington]

OK, I understand. Let us know how you get on.

Kind Regards.

Will do
Ken

 

[LION63]

The partial answer to your problem may lie in switching to a CFD provider that runs its own book(s) like CMC Plc. They would not have closed your position as a result of the rogue trade that took place this morning, the flip side of the coin is that you will not benefit from rogue trades either ( as was the case with your other trade).

When trading shares it does help to watch the price movement in order to ascertain rogue trades and this an only come with time and practice otherwise you will suffer similar losses time and time again without being able to rectify the situation or complain to the company concerned.

 

[kenhetherington]

Thanks. But I should make clear that I have not benefitted from rogue trades going in my direction. The one that happened last week (AUN) was not actioned because they said "there was no liquidity".

Overall I am much more comfortable to take rogue trades as far out of the equation as I can.

I already do watch the market closely as you suggested. I do that and have a range of tools that makes me aware quickly what is going on.

I am not sure what you meant when you said I should watch to avoid rogue trades. Rogue trades hit out of the blue. The issue is how the broker handles them. Plus me being able to identify them as such fast. That is exactly what I did and raised it with eTrade fast but like another contributor said they think its satisfactory as they have followed the rules to the letter.

I don't think I can do more to avoid them in advance unless I had a better crystal ball! But with CMC or City Index I should avoid most of them triggering unnecessary losses.

Thanks for your comments about CMC.

Ken

 

[SOCRATES]

In reply to the above I will explain that in rogue trades there is commonly no liquidity to be found. This is correct. Therefore there is no point in trying to take advantage of them because you will not get filled.
I have tried to nail them many times and have never succeeded.

I may have not explained what I meant properly.

What I meant is that if you develop the ability to recognise instantly what is a rogue tradde, and I am talking at a level where you are already very proficient and using mental stops, as a consequence of being able to recognise it is a rogue, then you can ride it until the prices normalise again. This takes some nerve, I know all about it, but with time and improvement and understanding anyone can eventually develop the skill and tenacity to do it.

Kind Regards,

 

[LION63]

Ken,
If you trade through CMC and you see what you perceive to be a rogue trade you simply cancel your stop and then replace the order.

Apologies for the way my earlier post was worded as you had made it clear that you did not benefit from rogue prices.

 

[kenhetherington]

Yes I appreciate what you said. I think someone suggested that I would benefit as much on the rogue trades that go in my direction as lose on those that do not. That is not the case for the reasons you said. It is a one way street. Rogue trades that trigger losses mean a loss (and often from a position of profit a few seconds earlier and later) and those that would trigger a profitable limit close don't. So its heads you lose and tails you don't win!

Were these things rarities I would just shrug it off. Sadly I dont believe they are. I have had two instances and seen many more. Especially in these choppy markets.

I don't think it would be difficult for me to recognise a rogue trade. The stand out like a sore thumb if you look at intraday candlesticks. Plus you can see the trades history on ADVFN.

I am watching my open positions closely for now, and I have taken off my stops but will put them back on tomorrow at 8.15am. I have already identified that stop management is a lot different in these whipsawing markets than it was at the turn of the year when stocks were generally trending. But generally I feel I am quite good at it - other things being equal.

Overall I want to make the compromises that will be necessary to avoid these random spikes, even if that means using a broker that has a slightly wider spread. I am getting quite reasonable at identifying entry and exit points and I can manage money, emotions, and so on, but I cannot manage people who hit the wrong button at 08.01:19 in the morning! Or at 11:14am for that matter!

Ken

 

[kenhetherington]

Ken,
If you trade through CMC and you see what you perceive to be a rogue trade you simply cancel your stop and then replace the order.

Apologies for the way my earlier post was worded as you had made it clear that you did not benefit from rogue prices.

Presumably that will only work if they haven't executed it in the meantime? But as you said, if they ignore rogue trades in setting their own price quotes it should not be a problem. Only where you have instant market execution regardless of what the price is, will it be a problem. As you saw eTrade exectuted the stop within seconds of the rogue price being hit.

Ken

 

[LION63]

I tend to find that there is ample time to make a decision before cancelling the order. That ensures that it is not due to a collapse in the share price which sadly tends to start with waht at the time seems like a rogue trade that is followed by another and the ripple becomes a wave.

 

[Racer]

So called 'rogue trades' can be CFD traders selling instead of buying when they are half asleep in the morning... what they meant to do was put an order on the book, instead they took out a lot of orders on the book with their mistake.

 

[kenhetherington]

So called 'rogue trades' can be CFD traders selling instead of buying when they are half asleep in the morning... what they meant to do was put an order on the book, instead they took out a lot of orders on the book with their mistake.

Good point.

Incidentally I am using the term "rogue trade" somewhat loosely. I mean it in this context to include a spike in price of transient duration for instance but not limited to real trade and one that has no relationship to the prices on either side of it. And what my broker called "gaps in the order book" that were a factor this morning in getting filled at a bad price..

Ken

 

[Chris Hood]

Thanks. But I should make clear that I have not benefitted from rogue trades going in my direction. The one that happened last week (AUN) was not actioned because they said "there was no liquidity".
* * * *
Ken

Interesting: post above describes similar results in our account with Saxo Bank, using the Saxo Trader, which is the E*Trade platform (white labeled to E*Trade UK by Saxo). Our stops were always filled instantly; there were never any "misquotes" or "no liquidity" errors to save our position and spare us the fill on the stop order, i.e., the loss. But four times, Saxo refused to fill our limit orders when prices hit and breached the limit price. It excused the refusals to honor the orders by saying the prices were "misquotes."

"Misquotes" or "insufficient liquidity," it's all the same -- the only trades never filled, and the only prices ever incorrect, are the ones profitable to the customer; prices profitable for the house as the counterparty (for Saxo or E*Trade) are always right. I wonder what explains the difference?

 

[kenhetherington]

Happily last week I removed my SL on AUN. I have a mental one and have been watching it. I saw a price spike that was transient that I am sure would have stopped out my profitable position had I had a SL in place. Happily that didn't happen as I had no stops set. Whatever is going on, I think the lesson is clear. That these kind of stops cost you money, and often increase your risk of turning a profitable position into an instant loss. So it is worth bearing that in mind when choosing a CFD or Spread Bet broker.

City Index and CMC have both confirmed their policy that once stops are hit they are first reviewed by a dealer before being actioned and if considered spurious price spikes are ignored.

That seems to me how it should be. Time will tell how I fare at CI and CMC. But so far I am happy with the integrity of their automatic executions.

Ken