We frequently receive technical support calls and emails concerning “odd behavior” in charts when using stop orders. Here is an example of what you may be seeing:
What you are seeing is absolutely correct. Using stops in your models can be a daunting task. Once you have correctly inserted stops into your model, the next step is to interpret them.
The section from the help file concerning stop orders is as follows:
“Note that the stop, limit and stop limit orders are day orders and are therefore canceled if not filled by the end of the next bar. if you want to trade from the open to the close of a single bar, use a market order to enter at the open of the next bar and a market close order with the same conditions to exit at the close”.
For clarification, when using stop orders, the Trader will issue a signal when your entry or exit conditions are TRUE, but will only issue a fill when the stop price has been reached.
We have created an example below which describes what is happening and why it happened.
We have two long entry conditions and two short entry conditions. Our long stop price is the High plus 2. Our short stop price is the Low minus 2. All exits will be market orders. If we are in the market long, and we receive a short signal, the program will exit us long, even if the short signal is not filled. The opposite holds true when we are in the market short and we receive a long signal–the program will exit us short even if the long signal is not filled. The most important thing to keep in mind is that there will be no physical long or short exit signal displayed on the chart. You will only see the exit fills.
August 2-Our short entry conditions have been met and a signal has been issued.
August 3-We fill our short entry signal from August 2. Our stop price has been reached. We also receive a long entry signal, since our long entry conditions have been met.
August 4-We exit short since we received a long entry signal on August 3. Our long stop price was not reached, so we do not fill the signal from August 3. We receive a short entry signal, since our entry conditions have been met.
August 7-We fill our short entry signal from August 4, since our stop price was reached.
August 11-We receive a long entry signal, since our entry conditions have been met.
August 14-Since we were short in the market and received a long signal, we exit short. Our long stop price has been reached, so we fill the signal from August 11. Our short entry conditions have been met, so we receive a short signal.
August 15-Since we were long in the market and received a short signal, we exit long. Our short stop price has been reached, so we fill the signal from August 14.