Spike OUCH!!!

[deanplake]

Hi,

Today I experienced my first live spike.......... Ouch! To say the least!!!!!!

I had a stop loss on the GBP/USD, but a 45 pip spike smashed me out the market, Like an idiot I did nothing but stare gob smacked at the bloody screen!

Later thoughts and reflections on the subject, I should have sold heavily at the spike and smiled to myself as the price plummeted back to reality!

As it happens when I got my feelings back and got over the loss I sold and gained at least half my losses back as the pair plummeted for the rest of the trading day! :|

What I need to know is what is a spike? Do they happen often or is it once in a blue moon? and is there anyway of at least having some sort of warning its going to happen?

I was having a really nice day till then!!!!!!!!!

Can anyone help?...................... probably not, everyone who knows me told me I was beyond help way before I found the money markets!!!!!!

 

[Perrington]

Spikes are there as a big player psychological strategy. They know everyone who is operating a "sound" stop loss strategy are sitting ducks.... They then take advantage of your emotions when they are running high, as your losing money and chasing the market.

IMHO stop losses are only required if your making many trades at one specific time and dont have time to monitor all open positions, or you have to leave to attend something such as an emergency or whatever.
Otherwise I fly in the face of what all the gurus say, and quite simply focus on several trades that I can manage in realtime, which means I dont place stop losses. Some people will slate me for this, no problem.

Oh, i best add at this point, that this only applies to intraday short-term trades, especially around news releases, if your leaving positions overnight then a stop is important.

 

[frugi]

Also beware of bucket shops. The biggest spike I can see in today's cable future is 20 pips. Do I smell lanolin in the air?

 

[deanplake]

Sorry, my mistake, thats why i'm writing in the first steps section!

The spike was indeed only 26 points on my platform, I had counted from the point where i had first started my position!!!!!!

Anyway, could someone please answer the questions, especially the one do they come ere often?

 

[Perrington]

Spikes happen all the time around news, data releases, big players dumping or buying up... so now you know they happen often, and now you know some of the main reason why they happen, and therefore can anticipate when they are likely to occur. Some spikes, well, you just dont know when they are going to occur.

When you understand spikes and when they are likely to occur, specifically news or bank data, you can actually take advantage of them (aslong as you call the primary direction correct). Say you think that when the fed raises interest rates by .5% the USD fx market will rise... you can place a sell order with a tight stop loss of say 10 pips or whatever, and place a buy order without a stop. So when the spike occurs to the downside, you will collect your 10 pips (assuming it spikes down) and then you can focus on your main trade. But this can slap you in the face, as not all spikes are 10 pips etc, nobody really knows how far a spike will travel.

Also, to show you how complex it can get, the Asian banks may decide to sell the USD if the fed makes a .5 adjustement to the upside, because they have publically stated that they aint going to be buying as much USD in the future. So this essentially provides them with "cover" to sell there USD reserves, and greenspan will have wasted a few economic cards (as the poker player said)

 

[deanplake]

Would just like to congratulate gamma on such a thoughtful comment!

May I just point out that this part of the forum is supposed to be for newbies like me to post my questions without fear of embarrassment or condescending people having a dig!

For the record, I have researched the forex market first for 6 months part time,then I left work,funding this myself, and spent a further 6 months playing on numerous demo accounts, which incidentally spiked all the time for no real reason other than poor streaming data, . I incidentally earned over DEMO$100,000 in that 6 months starting with DEMO$25,000 opening balance, 400 percent in 6 months is probably peanuts to senior members such as you, but hey, 20 percent of that pays my bills!

I just wanted to know some information, which I thank Perrington very much for his views and comments!........... He appears to realise what this part of the forum is all about!

Bearing in mind I have only traded live for less than 2 weeks, already returned over $2000 with very little risk ($25,000 account max trade deals of $200,000) trading only from my research and when i see my own definate trend patterns forming, and operating stop losses to reduce risk, and despite MY FIRST REAL SPIKE wiping me out, and yes I was already in the market awaiting the drop which even I knew was about to happen any moment.

My question I feel was valid for a newbie, especially when I looked back to a demo account i still have open and there were 3 spikes that hour approx 10 mins apart. Bearing in mind in real life such swings have a potential of wiping me out 3 times in 30 mins, and bearing in mind until approx 2 weeks ago demo accounts were the only experience i had ever had, I thought I would ask the forum.

But just to put your mind at rest gamma, I am not about too loose my shirt, cos............ probably just like you, when you first started in this market.................... I only have my cufflinks on the table!

Oh.........one last thimg gamma as you asked a question on my post, I will give you an answer (because thats what nice people do)...................... yes I have , and from my very own research, not from this site........................because people like you find it beneath yourself to actually answer questions only pontificate...................... I did find out why the spike occoured!

 

[FetteredChinos]

, . I incidentally earned over DEMO$100,000 in that 6 months starting with DEMO$25,000 opening balance, 400 percent in 6 months is probably peanuts to senior members such as you, but hey, 20 percent of that pays my bills!

looks like you are trading too much size.

, Bearing in mind I have only traded live for less than 2 weeks, already returned over $2000 with very little risk ($25,000 account max trade deals of $200,000)

congratulations, but again looks as though you are trading too much size.. slow and steady wins the race

, MY FIRST REAL SPIKE wiping me out, and yes I was already in the market awaiting the drop which even I knew was about to happen any moment.

2 points.
a)if a 45 pip spike wipes you out, then you are definitely trading too much size. 45 pips isnt even really a spike. check out some of the 200 pip intraday GAPS that we occasionally get around NFP days in the US.
b) assumption is a dangerous game. spikes are there to shake out the little guys before the real moves take place.

Bearing in mind in real life such swings have a potential of wiping me out 3 times in 30 mins,

did i mention too much size?

probably just like you, when you first started in this market.................... I only have my cufflinks on the table!

great, as long as you dont have your feet on it as well.

Oh.........one last thimg gamma as you asked a question on my post, I will give you an answer (because thats what nice people do)...................... yes I have , and from my very own research, not from this site........................because people like you find it beneath yourself to actually answer questions only pontificate...................... I did find out why the spike occoured!

i think GJ was only trying to save you from yourself here.

i think i am summarising what he is trying to convey, but in a more "helpful" manner.

did i mention too much size?

FC

 

[Perrington]

Thanks for your pleasant response to my advice dean, there are a lot of forum users here that know a heck of a lot more than me GJ being one of them, but when I do know that I can offer sound advice I do. Not everyone probably has me down as an angel though, as I do speak rather vociferously at times, but hey, how do you define a man if sits in the shade all day

Another phenomena that is associated with spikes is known as "stop hunting" this practice can occur when your broker deliberately spike's data to take out client stop's ! I dont think this happens very often though, and some retalier's are more genuine than others (however defining who is most genuine is a difficult task indeed). If you demonstrate to your broker that you are making a good profit even on the live account (demo accounts are deliberately made to be easy, to suck people in) then the chances are you could be susceptible to the occastional stop hunt...I must reiterate that this is unlikely to happen very often at all, but something I think you should be aware about, as when I first started trading, I rather foolishly thought I could take it for granted that trust was not even an issue. These people want your money !

 

[FetteredChinos]

not too sure i agree with either stop hunting, or demo accounts being made "easier".

if the MM's move the prices to a level, then whilst they may profit from taking out the stops, what about the profits they have to give back to people with counter-trend limit orders in place?

it all evens up over time..

 

[Perrington]

I agree, however stop hunting has been known and discussed, so therefore knowledge is power.

Demo accounts are a little easier in my opinion, but thats just my opinion, and if you operate from my viewpoint, you are likely to be more disciplined and alert to potential hazards.

 

[Glenn]

"......your broker deliberately spike's data to take out client stop's !"

I think you mean Market Maker, or Specialist, or Axe, or big-size trader, rather than broker.
Glenn

 

[Perrington]

Nope, I mean the retail broker themselves.

 

[Glenn]

Can you give an example of a broker who does this ?
Glenn

 

[cd173]

I know SB's do this. Throw spikes in to trigger stops.
I found I could make loads of money with the demo account, but it was a totally different story on the real thing!!!

 

[Glenn]

An SB co is not a broker.
Glenn

 

[Perrington]

Glenn

Personally, I dont place stops. Unless I hold a long-term position. I only have 2 long-terms as I type.
So Iam not the best person to ask regarding this issue. However, due to the inherent conflict of interests between the client and his fx broker, this is more than a possibility. I know this very subject has been touched upon here on this forum before, although nothing conclusive was determined. Look at the realities out there, boiler rooms, SB skewing, even the Bond markets gets it with info that leaks out prior to data.. Is it so far fetched to propose that stop hunting does not occur occasionally with retail fx brokers, baring in mind the inherent conflict of interests ?

Essentially, although this is likely to be a limited phenomena, Iam merely creating awareness, which is beneficial advice to the little guys. If you want to reject it, then by all means do, I prefer to confront as many variables as I can.

 

[FetteredChinos]

it is not stop hunting by the brokers.. it would be stop-hunting by the market makers knowing where all the cretins like to place their stops. ie just above/below a swing high/low

better to trade with wide stops and find a better escape route when things go wrong..im currently net long the ftse (complicated trade structure though) with stops down in the 4600 region..

if they go stop-hunting down there today, then i may just give this game up for good!

FC

 

[cd173]

An SB co is not a broker.

This is very true as I eventually found to my cost!
Which is why I switched to futures....

C

 

[Glenn]

Perrington
I was not rejecting it, I was asking about it. I have an open mind as regards potential new information.
However I have never heard of a broker hitting stops in my 7 years of trading.
In fact I cannot see how a broker would do it unless trading his own account. And he would be doing his clients a disservice and end up losing them.
A broker is a middle man, taking a data feed from an exchange and providing a platform (or telephone service) to deliver it to the client e.g. IB TWS etc. Otherwise techically he is unable to alter the quoted prices.

Certainly stops get hit by people trying to manipulate the market, by the type of people I mentioned above.
As I said, if you know of a particular broker who hits stops, I daresay many here would like to know about it.
Glenn

 

[Perrington]

FC, even though you are a guru of probability ! I would say you are likely to be safe with 4600

Glenn

Iam not referring to IB or any stock broker, Iam referring to retail fx brokers. The ones that give you 400:1 leverage and account start ups for 100 quid, the ones who also provide a comprehensive free charting package !