Guys, stop using stop orders

[Kloug]

Why should shorting be illegal? It is the same as speculating on the price increasing. I actually think it was simply just a normal crash, yes of course there were some stop orders thrown in there but not enough to see the falls that we did, at least not in my opinion.

Because it seems to be way easier & too tempting to manipulate market downwards than upwards.
Hell it even happened because of a simple tweet last time. That was just a rumor - ok, which got later confirmed, but still.

Of course shorting is legal, it's the ways that people shorting push the market down that are illegal, but how do you even prove such manipulations..


Was it a normal mini-crash, it depends which chart you look at.
If I watch BTC-EUR on Bitstamp, I think the 8000 to 7000 candle would have been avoided with better handling of stops. And then there would probably have a bit less panic afterwards. Instead of a 25% dip it could have been 15 or 20, maybe? And I do think the majority was a cascade of loss - that doesn't mean people wouldn't have sold manually if stops didn't exist. But they would probably have sold less. It's as much the very abrupt dip as the depth of the dip that causes panic IMHO.
But it's still ok. The cases of ETH/NEO/OMG are not ok at all.

[TheQuin]

The only real stop order is a stop limit.

This is the point I'm really trying to correct you on more than anything else because it is so important to understand. In a fast market, a stop limit is completely useless as it will not get filled, it might as well not be there, and that is why professionals do not use them in this way.

The examples you give are very extreme cases of what can happen in an illiquid market. If the people in those examples did anything wrong it was simply not understanding the risks involved in trading. This also brings me back to my other point of not trading illiquid markets.

Obviously professionnal traders will tell you that stop orders are useful, because they don't trade things THIS volatile for a living.

This is a very common misconception. You should see the futures markets after a major news release. The high-frequency algorithms running on specially built servers colocated at the exchanges make crypto look pedestrian. After the CME announced the introduction of Bitcoin futures in an interview the head of CBoE said that they had studied volatility and found Bitcoin to be in line with the VIX.

Also, you have to factor in the increased level of leverage we are using which amplifies the financial impact of that volatility. Crypto exchanges offer up to 3.3x leverage whereas I trade the Emini S&P 500 on a fixed margin of $400 per contract. The contract specification is a $50 multiplier and the minimum price increment 0.25 points making $12.50 per tick. At the time of writing this the current bid is $2640.75 giving a value of $132,037.50 so divide 400 gives leverage of 330x. That means price movements are amplified 10x in my PnL column compared to trading on Bitfinex. So the similar volatility to the VIX is actually 10x more when trading the futures.

[LoyceV]

Let me take, again, that example of that guy who sold his NEO at $4. But we could take the other example of that guy who got his ETH sold at 10 cents, if it makes it clearer:
https://www.reddit.com/r/ethtrader/comments/6iokzy/gdax_just_sold_a_good_chunk_of_my_ether_at_10/
https://www.cnbc.com/2017/06/22/ethereum-price-crash-10-cents-gdax-exchange-after-multimillion-dollar-trade.html
That made the news some time ago, and people didn't learn from it.

What did that guy do wrong? HE USED A STOP ORDER. HE DID NOT DO ANYTHING ELSE WRONG.

It's kinda the risk that comes with being a trader. I only buy and sell when I want to do that at the current price, or I place an order to sell above the current price. But I'm not a trader: I keep my coins and euros in my own wallet, until the moment I'm ready to make a transaction.
I've said it before and I'll say it again: whales love triggering stop orders, to trigger a cascading event up to very low prices. When that happens, the whale strikes and buys your coins at a very low price.
This is also why I don't worry much when Bitcoin drops a lot in a short time: it's all manipulation, stop losses being triggered, and panic sells. Right after that the price usually bounces back up when traders try to buy back the cheaper coins.

I'm not sure if it's possible on exchanges, but if I'd ever use a stop order, I'd want to be able to set a minimum price too. For example: sell at 6% drop, but don't sell anymore if it drops more than 20%.

You could also do the opposite: place very low buy orders at several exchanges, so you can be the guy who buys 1000 ETH at 10 cents each!

[Kloug]

This is the point I'm really trying to correct you on more than anything else because it is so important to understand. In a fast market, a stop limit is completely useless as it will not get filled, it might as well not be there, and that is why professionals do not use them in this way.

Why wouldn't it be filled?

If you set your stop at 50, and your limit at 10, there, if it drops below 50 and you're near the top of the book, you will sell at 40, 30, 20 maybe. In any case, at prices you're ok to sell at.
If you're the last in the book and there aren't enough buyers, it will indeed NOT sell at 5. But that's the whole point!, you normally DO NOT WANT to sell at 5.

Let's face it, your value was 100, selling at 5 is pretty much the same as losing. 5 is no value. If it doesn't stop at 5 and goes down to 1, sure, you've lost even more, but you had pretty much lost everything anyway.
The reason you do not want to sell at 5 is that you are pretty much guaranteed (& you know it) that if a market falls from 100 down to 5 in a minute, it doesn't mean no one wanna buy, but it's a chain reaction of stops and no one IS GETTING A CHANCE TO BUY.

You are pretty much guaranteed that if your share goes from 100 down to 5 in a minute, it will go back to 10, 20 or 30 a few minutes later. So why the hell would you want your stop to sell at 5 and lose every chance to get back to a decent level?

The guy who got his ETH sold for a few cents, that's just not normal, it's a technical problem, not a human problem. Had the guy been given access to a stop limit, he would not have set his limit to a few cents. He would have set his limit to like 100usd (I mean come on, an ETH at 100, pretty much guaranteed to sell), thus his stop would indeed NOT have been processed, and he would have been happy with it.
Sure, he has to be aware of the technical problem behind stop orders, but he's not given an alternative. Which is why I advise to simply not use stops, unless you're certain that there won't be a massive drop, which just can't apply to crypto.
Bitfinex provides stop-limit, I really advise people to use that instead. This said, limits are normally processed after market orders, so it's not that ideal either, but still safer.

The examples you give are very extreme cases of what can happen in an illiquid market.

I gave examples that just happened, have happened a few weeks ago & made the news, and will happen again. The bitcoin seems to get its daily instadrop of 10% these days. So for alts it's even worse.

[Kloug]

I'm not sure if it's possible on exchanges, but if I'd ever use a stop order, I'd want to be able to set a minimum price too. For example: sell at 6% drop, but don't sell anymore if it drops more than 20%.

of course it's possible, Bitfinex has a stop-limit, Kraken had (before becoming worthless), & a lot of other exchanges I'm sure.

You could also do the opposite: place very low buy orders at several exchanges, so you can be the guy who buys 1000 ETH at 10 cents each!

yeah, I often have low orders to benefit from those cascades, but you need a lot of fiat sitting on the exchange for that.
That said, 1000 at 10 cents, that's just 100, quite doable to place one order for each currency.

[TheQuin]

Why wouldn't it be filled?

I have explained it to you already, you don't want to take good advice so I'll leave you to find out for yourself.

I gave examples that just happened, have happened a few weeks ago & made the news, and will happen again. The bitcoin seems to get its daily instadrop of 10% these days. So for alts it's even worse.

I'll give you the example of when the SNB announced that they would no longer support the CHF in a pegged range with the EUR. Not only were many traders wiped out whole Forex brokerages were as well. These things happen, it is part of the risk of trading.

Not understanding the implications of the difference between a stop market and stop limit and when to use them is a good way to increase that risk.

[Kloug]

I have explained it to you already, you don't want to take good advice so I'll leave you to find out for yourself.

You haven't explained anything, you just said it would never be filled. Perhaps you're talking of a stop order that would have its limit at the stop price, which isn't something that exists in any exchange, because that wouldn't make sense.

Stop limits have a price trigger and a limit price, they are separate.

[negancoin]

I never used stop limit order in crypto trading, but it's really a useful tool in forex. I think Stop orders are not generally bad in crypto too, but people should use it without understanding what could happen.

[TheQuin]

You haven't explained anything,

In a fast market, a stop limit is completely useless as it will not get filled, it might as well not be there,

That is all I am trying to explain.

you just said it would never be filled.

You left out the "in a fast market".

Perhaps you're talking of a stop order that would have its limit at the stop price,

Not specifically, you can choose the offset.

which isn't something that exists in any exchange, because that wouldn't make sense.

Yes, it does if you set the limit and stop at the same price. This makes sense when using one to enter a trade, typically in a breakout play. You use the stop to trigger your entry and by using the limit you avoid any slippage. If it fails to get filled no harm is done you just missed the trade.

Stop limits have a price trigger and a limit price, they are separate.

Precisely. The stop just triggers the placing of a limit order. If there is no corresponding order at or better than your limit price it is not possible for the order to be matched and therefore it will not get filled.
If using a stop market gets filled at a certain level then that is the best possible level a stop limit could have been filled in. If your stop limit was outside that range then it would not have been filled. It is possible the market could turn around and eventually your limit gets filled but that is exactly the same thing as trading without a stop and just praying the market come back to you. 

I didn't realise that you needed it explaining at such a basic level.

[megget]

Do people really have to lose money to understand what a (market) stop order is?

What I see on Bitfinex & GDAX is frightening. Some really have sold their NEO at $4 (& thus some lucky ones have bought). Some have sold their OMG at $3.
Did they mean to? Of course not. It has happened in the past, and poor users cried & threatened to sue exchanges.

Market stop orders shouldn't be used, and they shouldn't even exist for crypto or anything this volatile.
What we saw yesterday was the result of a cascade of stop loss orders, nothing else. There was hardly a manual panic, it was automated panic.

At first I thought that Bitstamp had crashed, but then I realized that maybe it had been closed on purpose for a short time, to avoid this (especially considering Bitstamp had been pointed for such problems with stop orders in the past).

These are automated, they probably get a higher priority, happen very fast, hog servers, not even leaving buyers a chance to buy.
Perhaps all exchange need a protection for this, really freezing on purpose when this kind of crap occurs. There is a big difference between a panic sale that comes from humans, and the one from a cascade of stop orders.

So stop using stupid market stop orders. Use a limit stop order if your exchange offers one, or just don't.
Pretty sure that all exchanges will now start to turn their market stop order into limit ones, after this event, or the next ones. It's not even a bug, it's offering the wrong tool for the market.

Or... keep placing stop orders.. and give your money to some lucky guys who will make 300% in a few seconds.

Regarding what happened with bitfinex, this was done to merge marginal traders, but not those who bet, the stop loss. If you went into the deal and put a stop loss under the support line -3%, then what losses are we talking about? If the asset went into growth, then you move the stop loss higher and at any strait of the course, you exit the stop order already in the plus. More suitable: do not use margin trading, especially on bitfinex with their tether and straits.

[Kloug]

You left out the "in a fast market".

ok, so we at least agree that in a fast market, chances are that the stop won't be processed.

We just don't agree on whether it's a good thing or not. I'll still maintain that there is always a price at which we don't wanna sell, a price that can only be reached because of technical limitations, nothing linked to the market itself, that is, nothing linked to demand & offer at all.

A stop loss final sell price should be based on the lowest demand, and it simply is not. It is based on the lowest demand in the current order book, which is only one part of the demand.

And you keep saying that a stop has its uses, when things like the mini-temporary crashes in the ETH example don't happen. But no one can predict when they happen, so the fear is always there.
Normally the guy who got his ETH sold for a few cents should have had his ETH sold to the highest bidder in a normal, "human time" auction, in which all of his ETH would hae been sold way way above 10 cents. Perhaps 75usd at the lowest. Which would have still been a bargain for the buyer, and would have been way better for the seller.
The books only represent those who are ready to have a lot of fiat stuck doing nothing in the exchange (which is already a risk in itself), not the ones who have some fiat & are ready to buy opportunities when they see them coming, which I believe is the majority.

[Micerker]

This really has a huge impact on the community, but these are also the whales that change the direction of the market.

[arpon11]

There are alot of confusion in trading that if you don't have strategy that works for you it is not good to buy into any trading opportunities. Many traders has actually lost huge amount of money because of this place an order in trading platforms. Placing a trading orders is good for margin trader and not buying into a particular coins. If you bought neo cheap you have to wait for it to grow before sell it like every other markets and placing on stop under on neo will ever make you to lose money as this market is higherly volatile and fluctuate alot.

[sandy8800]

While I see the OP's point, i believe it is too much of a generalization not applicable to all cases. Stop order is a very important feature and trading and has saved me a couple of times already. The thing is you really need to learn how to use and know when and at what price to place stop orders. Generally if you are a newbie doing guesswork with trading, stay away from stop orders.

I agreed. Stop orders are not bad. The question is how you are using it. If you are just playing guessing game with stop orders, trading is not for you.

[TheQuin]

ok, so we at least agree that in a fast market, chances are that the stop won't be processed.

A stop market is always guaranteed to get filled. A stop limit places a limit on the chances of it getting filled. A stop limit will not get filled at a better price than a stop market so its only use should be to avoid slippage on an entry.

In the example, you cite of a flash crash the market immediately rebounded. That means that yes you could have got lucky if you were trading without a stop at all because the market came back to you. It is far more common for a market just to suddenly start crashing and then continue long after your stop was filled. Not using a stop in those situations will cost you dearly.

I have been trading for more than 15 years and I'm just trying to give you good advice.

[Kloug]

In the example, you cite of a flash crash the market immediately rebounded. That means that yes you could have got lucky if you were trading without a stop at all because the market came back to you. It is far more common for a market just to suddenly start crashing and then continue long after your stop was filled. Not using a stop in those situations will cost you dearly.

I have been trading for more than 15 years and I'm just trying to give you good advice.

And in 15 years, how many times have you seen a flash crash down to -95% that did NOT rebound immediately?


The rebound totally depends on the true value, and that is exactly what you estimate to be that value that should be the limit price of a stop order.
Hey, I see a flash crash down to -95%, regardless of the reason, a hack or some chinese tweet, I buy!


On the ETH case, I hadn't seen this guy's screenshot btw. This shows that, as someone pointed out, it can be very true that some insider in the exchange could use the precious stop loss info to make big money. A million in a few seconds.... I wonder for how long that order had been sitting there.
https://stocktwits.com/jdemasie/message/86641301

[TheQuin]

And in 15 years, how many times have you seen a flash crash down to -95% that did NOT rebound immediately?

With up to 500x leverage much smaller % flash crashes can cause you much more financial pain.

The rebound totally depends on the true value, and that is exactly what you estimate to be that value that should be the limit price of a stop order.

What if it is due to some fundamental news that has a lasting impact on what that true value is?

Hey, I see a flash crash down to -95%, regardless of the reason, a hack or some chinese tweet, I buy!

Good luck.

I have tried very hard to help you here by explaining why you should not use a stop limit as a stop loss. It's entirely up to you if you want to learn the hard way and find out in your PnL column one day.

/Quin out

[-Redacted-]

While I see the OP's point, i believe it is too much of a generalization not applicable to all cases. Stop order is a very important feature and trading and has saved me a couple of times already. The thing is you really need to learn how to use and know when and at what price to place stop orders. Generally if you are a newbie doing guesswork with trading, stay away from stop orders.

exactly. a beginner will be difficult to understand. can get into trouble

[RoommateAgreement]

stop orders can be a double edge sword in the cryptocurrency markets. specially when it  comes to altcoins and when you don't know they are pump and dumps. because a coin that is getting pumped and dumped can have weird swings due to its manipulated market. that means sometimes when you place an order like that you miss some opportunities.

this doesn't mean stop orders are bad or should not be used. it just means you have to be more careful and also place then with more care, or even if you could you should add some more conditions to the order that is placed before it is finalized. meaning your only condition for stop order should not be "price".

[Kloug]

What if it is due to some fundamental news that has a lasting impact on what that true value is?

Yeah, that was my question, how many times have you witnessed this in 15 years?

What I'm describing has happened 3x in a few weeks, and that's just those I saw on the 2 exchanges & few coins I'm checking. One made the news and amazed everyone, showing that it's not something many people expect to ever happen.