11/24/2020 — Stop Order Shenanigans

Check out all those stop orders…

In a way, being a trader is akin to being a perpetual skeptic. When the market is up and the economy looks rosy, you need to keep an eye on reasons why it might reverse course and head south. When volatility is asleep and all is calm, it pays to search out any potential calamities before they hit. Don’t get me wrong, I’m not some crazy contrarian just for the sake of it, and many times I’m in full agreement with the overall market sentiment, but somewhere in the back of my mind, I’ve got my eye on the other side. Paying heed to the dissenting opinion and listening to the “minority report” has saved my ass on a couple occasions.

Today I’m skeptical for another reason entirely. To the best of my knowledge, any basic stop order that I enter should be shielded from the public’s eyes and known only to me and my broker — in this case my online trading platform. In this sense a stop order is just a market order that is triggered when some aspect of the market touches a specified stop condition. I like to use them as a hedge. I can almost guarantee a certain exit price for a winning trade and maintain the position to allow myself to reap the benefits of the prevailing market trend.

For example: If I buy 10 contracts of product XYZ for $20 and the price rises to $27, I might want to put in a stop order to sell 4 at $25. If the price falls to $24, it is likely that I will have executed a market sale of 5 contracts near a price of $25, guaranteeing a $4 credit for each of the 5 contracts I sold. If the market continues upwards through $30, I will still be in possession of 10 contracts and will likely move my stop order up to a price of $28…crafty, eh?

I don’t feel nearly as crafty when twice in 24 hours both my stop orders are activated on local, 8-hour lows. This happened once overnight and once during the trading session today. I always try and shy away from conspiracy, but when this happens enough times, as it has recently, there is a part of me that always wonders just how secure my stop orders are from the public. Now in realty, no one cares about my paltry sum of contracts. Big firms and funds regularly execute contract lots by the tens of thousands, making my activities amount to less than a drop the bucket — the equivalent of financial vapors. But somebody, or some program, or some entity sees my orders…

As humans we are primed to see correlation when there is only coincidence. During the few moments when the stars in our lives align and appear to form constellations, we trick ourselves into seeing them although our rational minds know they don’t exist. When my resting orders get lifted on the bottom twice in one day, I feel like I’m being picked off. Logically I know that there must be a bottom price to any time range, and that I could easily change my attitude towards this misfortune by simply picking a larger timeframe where my price was not the lowest!

I have friends who won’t place resting orders like these out of a latent fear of financial malfeasance. Some, myself included, believe this to be superstition, or perhaps a touch of paranoia, but anyone in the industry knows at least a couple legendary tales of financial graft. After all, no one would ever notice a 2-lot here or a 5-lot there…

I know better than to believe in this shit. There are procedures, programs, fail-safes, and the proverbial “chinese walls” that keep my orders between me and broker safe from the prying eyes of even the largest and most powerful entities. But I’m still a bit skeptical. Don’t blame me. I’m a trader, and to be a trader is to be a skeptic.

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A running soliloquy covering the life and times of a financial trader. Opinions, insights, commentary, and stories from past and present…served with a healthy dose of irreverence.

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Willie Witten

Willie Witten

Writer, thinker, trader, musician, builder and beer aficionado. Find me at williewitten.com

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