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Argument for never using SL in orderprocessing in EA...and proposing an alternative

  • Post #1
  • Quote
  • First Post: Jul 9, 2008 2:57pm Jul 9, 2008 2:57pm
I think it is way better to not set a SL when you send an market or limit order. The reason is that the dealers are able to see all the SL and can go stop hunting.

What I think is a much better way to do SL is code the check for price movement in your EA...for example in start(), you check if the current tick price has moved on or below your predefined SL, if it hits, your EA close the order. So the dealers have no idea what is your SL.

anyone agree or disagree with me? i like to hear some comments from the 1k posters.
Invisible stops and TPs are certainly something that is sometimes considered a "feature" in some EAs, but they have their own drawbacks:

 

  1. Your EA must be on and the computer running for this to work
  2. There is the problem of poorly coded invisible SLs, which could potentially not close a trade at the SL, or at all.

The best compromise really is a disaster broker-side SL, and a much tighter invisible sl in place.

Personally, I don't use invisible stops. But on the other hand, I rarely get stopped out at my stoplosses.

Quoting Ronald Raygun
Invisible stops and TPs are certainly something that is sometimes considered a "feature" in some EAs, but they have their own drawbacks:

 

  1. Your EA must be on and the computer running for this to work
  2. There is the problem of poorly coded invisible SLs, which could potentially not close a trade at the SL, or at all.

The best compromise really is a disaster broker-side SL, and a much tighter invisible sl in place.

Personally, I don't use invisible stops. But on the other hand, I rarely get stopped out at my stoplosses.


yeah, connection is a problem, but there are dedicated vps for EAs where the connection should be pretty reliable. you can just write a couple lines of code at the beginning of the start(), so on every tick you're checking for SL conditions before you do other calculations.

i think it is pretty easy to create realiable invisible EAs even for 2-3 pips SL.
Quoting Geelong_Cats
yeah, connection is a problem, but there are dedicated vps for EAs where the connection should be pretty reliable. you can just write a couple lines of code at the beginning of the start(), so on every tick you're checking for SL conditions before you do other calculations.

i think it is pretty easy to create realiable invisible EAs even for 2-3 pips SL.
It's definitely simple, I don't deny that. It's reliability I'm more concerned with.

DGC coded an EA for the OzFx system with invisible SLs built in. There were a series of problems with it and ultimately, that EA is now serving a secondary purpose as order-entry only.
I've coded "invisible" SL & TP's for clients who wanted them, and as others have written here, they're straightforward to code, yes.

However, I've always tried to convince my clients to drop the conspiracy theories:
Brokers/dealers don't stop hunt!!
People who think they do simply don't understand how the system works.

First of all, brokers/dealers hedge their net exposure as a whole, and they simply don't look at individual orders' SL to see which ones they can pick off. It would be impossible to run their business if they did. Brokers are earning their money not from trading, but from providing liquidity to the market, that is, by earning the spread. They have absolutely no reason to take out your orders by hunting your stops. The very notion is ludicrous and downright laughable to anyone who knows how brokerages actually work. The last thing they want to do is to lose your business.

Why does it seem like stops are being hunted? Simply because people always place their stops (visible or invisible) at the most obvious places, and the market always gravitates towards points of greatest volume. These obvious stop levels thus "attract" the market, because a lot of stop orders are stacked up there.

So, unless you're wiser about where you place stops, they're going to get hit anyway (even if they're invisible). The solution to not getting your stops taken out is not to make them invisible, but to be smarter about where you place stops!
Dave
Quoting DaveL
I've coded "invisible" SL & TP's for clients who wanted them, and as others have written here, they're straightforward to code, yes.

However, I've always tried to convince my clients to drop the conspiracy theories:
Brokers/dealers don't stop hunt!!
People who think they do simply don't understand how the system works.

First of all, brokers/dealers hedge their net exposure as a whole, and they simply don't look at individual orders' SL to see which ones they can pick off. It would be impossible to run their business if they did. Brokers are earning their money not from trading, but from providing liquidity to the market, that is, by earning the spread. They have absolutely no reason to take out your orders by hunting your stops. The very notion is ludicrous and downright laughable to anyone who knows how brokerages actually work. The last thing they want to do is to lose your business.

Why does it seem like stops are being hunted? Simply because people always place their stops (visible or invisible) at the most obvious places, and the market always gravitates towards points of greatest volume. These obvious stop levels thus "attract" the market, because a lot of stop orders are stacked up there.

So, unless you're wiser about where you place stops, they're going to get hit anyway (even if they're invisible). The solution to not getting your stops taken out is not to make them invisible, but to be smarter about where you place stops!

i thnk you're right.
I agree also that brokers wouldn't hunt for an individual's stop loss. Yet, their business is to make money, and they do see stop losses which is an edge. Why wouldn't they take a big picture (EA) look at ranges where the majority of traders who learn similar methods of trading are putting their stop losses. Lets face it we signed agreements saying we acknowledge they trade against their clients, its all part of it. To go after aggregate stop losses is risky so IF or "when" they do this there would have to be a high probability of success. An EA or indicator that could let you know when these probabilities are high would be interesting. You could adjust accordingly. If I could see everyone elses stop losses and everyone acknowledged that I can use this information I would, no doubt about it. Hidden stop losses are similar to someone's mental stop loss. I think this is an edge for the trader to think this way. There is no conspiracy when you know the reality.
Redefining Reality
  • Post #8
  • Quote
  • Last Post: Jul 12, 2008 10:38pm Jul 12, 2008 10:38pm
Quoting DaveL
Brokers/dealers don't stop hunt!!
yes they do!!!
they are sharks, and like eat little fishies for yum yum
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