How can stops be protected against fake gaps ?

I have no idea what a "fake gap" is. LOL.

If you've got a stop in the market, and it gaps on the opening and hits you, you're gone. Real simple. Alot of people play these gaps, so sometimes it moves the other way quickly.

What you could do is simple not place your stop until after the market is open for let's say 5 minutes. Then put it below the opening range, if you're down around where you think your stop should be. Obviously, you take a risk doing this, the risk being that a stock could gap, and then continue....turn out to not be a "fake gap". LOL.

You're going to have to decide which poison your prefer. I generally don't have overnight stops. I will place a stop after the market is open. Sometimes it costs me, sometimes it saves me. It's just how I prefer. I mostly trade futures by the way, not stocks.

OldTrader
 
Quote from OldTrader:

I have no idea what a "fake gap" is. LOL.
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OldTrader,

Please read my first post re: CVC and its price action on 4Sep.

I have seen similar situations many times on the NYSE and AMEX.

Lets say that the previous day's range on a stock is between 29 and 30 and closes at 29.50. The next day it opens gap down and opens at 25.00 on miniscule volume (say 100 shares). If underlying stops are hit, then obviously volume will be greater. That 25.00 will be the opening print. Then on the next print, price starts quoting again at 29.45-29.55 on regular volume !!

So the opening gap was obviously FAKE . The kind of situation I am describing is more like a bad tick situation with one bad/erroneous price print which is not busted.

Now a person who was long overnight and thought he could prudently set a stop 2xATR away at27.50 and ends up being stopped stopped out at 25.00 only to see price back at 29.50 on the next print. Makes you feel like you've been robbed/swindled.

If such a thing ever happened on the ES, the CME would immediately bust the trade. I dont know how the MMs get away on the NYSE and AMEX.
 
You can try to manage and trigger your own stops. Will need your computer running with reliable connection.

Once you are managing your own stops instead of entering them in your broker's order book you can write rules to filter fake gaps.

This is not an easy task..
 
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