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GBP. What's Going On Right Now.

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Funny enough I was last night just looking at the pound 1 hour before the Asian trade, and all of a sudden seeing that huge move was shocking, funny thing is I don't remember brexit happening like than, it was more like 2-3 cent moves that took much longer than 2 minutes. Their must have been some really poor liquidity last night, but that was seriously abnormal, eur gbp went to parity last night as well. Most have us have been calling for the pound to reach parity or at least the 1984 levels of 103 for cable, but seriously 6 cent move in 2 minutes, markets don't work that way, regulation bodies are going to be all over this. I think I will stay away from GBP pairs for the moment, you cannot even look at the charts right now because of the move.

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Nice inside track vignette on the world of financial markets in general.  Why does anyone give these people their hard earned cash to manage...???  Perhaps there will be another Liars Poker style book coming out of last night.

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123 seconds is all it takes, this was more like the SNB move, Brexit was a slow mo crash by comparison. Peeps on twitter talking massive slippage and huge losses, I hope IG's guaranteed stops doesn't cost them too dear or we might all regret it.

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You make an interesting point there  and it is one I have pondered for a while.  What if there is a major meltdown crash?  Will we be able to trade it at all?  While I doubt markets like the S&P would experience something like last night (famous last words) a sustained multi week crash could easily happen.  Broker market makers like IG can and would close to new trades if things got to hard for them to lay off the positions in the open market.  What if the brokers all go bust too?

 

As for me I only keep what I can afford to lose in my account and below the government guarantee scheme (FWIW).  the rest in under the mattress...

 

 

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Hi Caseynotes,

 

Yes what a shock to the markets of that massive down turn on the GPB...It is a strange one as the GPB is never knowing where it should be at the end of the day.? I am new to trading and being working on my demo account and doing ok so far. Can you give advice on the guaranteed stops? If you place a stop: why would it not stop you the trade you are in? so why is it best to use guaranteed stops?

 

Thanks for your time.

 

Trevbeats. 

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Hi 

 

Excellent question and deserves a full answer (as full as I am able).

 

A normal stop might not be triggered because fast moving price may well jump over it (slippage). Price movement is not lineal. It’s an easy mistake to make watching charts as charts show lineal progression from A to B but in a real time auction (the market) participants shout out bids and offers, price jumps from one level to another, there is no lineal progression.

So charts are misleading. If you have an order in the market to get you out of a trade it is quite possible no one wants take that contract off you, eg in a crash.

 

Charts are a simplistic visual representation (a record) of what has happened, not how it happened, and can’t show what’s happening right now. To see that you need ‘DOM’ Depth of Market as in level 2 data or ‘Price Ladder’ data though even those can’t show ‘at market’ entries or dark (shadow) book undisclosed orders.

 

So on to guaranteed stops. In all my years with IG I can say I have never used one. I have sat at my desk and watched the SNB flash (a Clive Lambert tweet ‘the peg is gone’, he was first to alert), I watched the 1st and 2nd Brexit flash as well as innumerable shock data releases. You need to understand variable volatility needs to be matched with variable risk management (RM).

So you read the risk management mantra ‘1% of total account on each trade = conservative and 3% = big ****, more than 3 is slow suicide’. Basically true, but was trading ever really so simple, ha.

 

So, a more volatile chart eg. GBPJPY by necessity needs a larger stop (because each bar is so much bigger) so, as stop size is a function of RM then position size is automatically decreased.

Exactly the same principle applies to a formally placid (relative) chart that is now showing signs of seriously increased volatility (GBPUSD since the referendum polls started 8 months ago!!!).

 

Anyone who had a 10,000 account and was still playing GBPUSD at 3% RM and was caught on the wrong side with 400 pip slippage was wiped out.

 

If volatility has increased exponentially then RM must be decreased accordingly, if you still want to play in a highly volatile market don’t be afraid to think 0.5% RM.

 

Oh! you might cry, George Soros never made billions by being ultra conservative. Read the lit, GS made billions by understanding risk management.

 

Hope this might help.

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Ah thank you for to my reply.

 

I think i'm on the right page: My stop could be missed and my trade goes out of control leading to blow out the account. 

 

So you have not used GS can I ask why?,  would I be right: to use a GS this is only if there is a fast crash to my trade?{ but when do we know if there is going to be a crash. Or is it safe to just to place normal stops in?

 

Regards

 

Trev..

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Hi 

Yes, but the point is the degree of risk you are willing to take on in light of the potential for high volatility matched with low liquidity. Once a market starts tanking only a bank stepping will catch you (there is no liquidity in a crash until a bank steps in).

A similar situation exists for unexpected news releases. Once a market starts moving fast in one direction no one wants to take that contract off you to get you out of the trade. Or, conversely, if you are trying to get into a fast moving market you get a no fill on your order or a bad fill (slippage going in because you can’t compete for speed).

 

So you start entry planning with a risk assessment. I don’t play actual news releases because the increasing spread and the potential for high slippage and whipsawing decrease the opportunity for success and increase the chance of a stop being hit.

The ‘no charge for guaranteed stops (GS) unless hit’ is new and welcome, previously their cost added to a woefully widening spread but news events and high volatility need larger stops and there is an increased chance the stop will be hit so the cost is still there. Occasional small amounts of slippage are not a problem, flash crashes are rare and nearly always come with a waving red flag.

 

I heard people on twitter saying what a great repeat trade the Swissy was with the SNB peg, I thought they were mad.

I saw the whipsawing during the referendum vote, I thought people playing that had very deep pockets.

The last GBP crash was always on the cards given the uncertainty caused by the referendum outcome and talk of potential USD parity.

 

I still prefer to keep out of situations where the market doesn’t know what to do and wait until things have settled down and it does know. Hence, in my risk assessments I have never felt the need to increase the potential cost for a GS. 

 

 

In my 10,000 account size example I should have qualified that in more detail by saying, if you had a 10 pip stop you would have been wiped out with 400 pip slippage on a 3% risk management strategy but with a 50 pip stop you would have survived, because the larger stop would have necessitated a smaller position size. Yes, a GS would have prevented disaster but do you need to apply it to all your trades and so significantly increase the cost of doing business?

Risk assess and apply it where you feel it is warranted.

 

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Great advice Sir,

 

I Will come back with some more feed back on that if I may.

 

I done well on trades today: £690 up in a mornings work all "Price Action" and a few indicators: so had a break from trading for the rest of the day...however, its hard not to have a little peak at the £v$ or oil etc...

 

Wife calling better watch the rest of the film...ill be back..

 

Thanks for the help you are giving me.

 

Trev.

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Sorry for the delay.

 

All the advice is taking down thank you. Well It's all getting exciting with the big fight in the US atm...At what time will we see the markets go mad? crash or dash?

 

More on the stops thank you now I now what slippage is..

I did have a trade on oil the other day [news event] I did a price action and support and resistance on my chart to win the trade and it hit my limit of 70 pips::: in nano seconds i was in the money,,,,"smiles", however like you say if it goes the other way and stops are not in place or GS is not in: Boom.. Yes as I am slowly getting better at reading charts and I am slowly moving away from News events..as sometimes positive or a negative result from the forex factory does not line up??

 

 I am looking at long trades and small positions.{ Larry Williams]  I read and watch some of his you tubes A wise man I think..any advice on that sir.

Thanks again for your help.

 

Trevbeats..

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