Stop losses made losses!!!

I just came across this today;

Stop loss made losses

Traders are concerned about a series of trades on Tuesday which caused hefty falls in the share price of David Jones and Macquarie Airport stocks, only for the price to recover within minutes.

MacAir was trading at $3.38 at 10am and within 15 seconds a series of trades pushed it down to $2.99. Within three minutes it was back up to $3.39.

In the case of DJs, shares were trading at $2.09 shortly after 10am when they fell to $1.91 within 30 seconds before jumping back up to $2.07 within two minutes.

Marcus Padley from Tolhurst Noall said cascading stop-loss orders - pre-programmed levels at which investors can automatically trigger a sale - caused the volatility. The orders were made via online retail broker CommSec.

Padley said futures traders expected automatic stop-loss orders given they traded overnight, with a fall triggering sales but a recovery in the price by the time they arrived at work.

"In the equities market we are not used to this. If these two incidents were as a result of the conditional order system at CommSec then the market needs to know that and wise up to the fact that what happened is going to become a regular unhealthy feature of daily trading."

CommSec general manager Michael Blomfield said: "I don't believe for a moment we have a problem," adding "nor have we breached any obligation to maintain a reasonable market.

"Conditional orders are a way of capturing latent demand ... they tell us in effect what clients would do if certain circumstances occur. What's changed in this world is technology allows it to happen faster.

"I don't believe my clients have been stung and would be prepared to bet we get no complaints from our clients because they wrote these requests down."

Click to expand...

For all the day traders out there - is this a bit scary? I don't know what the commsec guy is talking about.... I would be pissed off if stop losses triggered a sale of MacAir at $2.99 and the price was at $3.38 three minutes later

Maybe it does pay to have ridiculously low bids in on companies you like, just in case you pick up sometyhing like this . Ofcourse thats only if your OK with holding all the shares after a sharemarket crash

I read this in the SMH this morning as well.

Commsec has an option where you put in an automatic trade (buy or sell). But you have to accept the terms / conditions before you can use it (you actually "apply" to use this additional feature). Part of the terms is that you understand what you are doing - so I guess you have only yourself to blame.

I wouldn't touch it myself for this very reason though.

I nearly always place stop loss orders but you have to be VERY careful with this as I have learned the hard way...

This is not intended as a blatant promo for anyone but I would strongly reccommend that if you want to use stop loss / start gain orders to actually get in to or out of the market (which you could do if you take long term trades based upon breakouts in either direction) that you have a human element involved in the process. That is, don't have it fully automatic.

The advantage of having human involvement is that you can instruct the broker to, for example, wait for a period of time after the order is "triggered" before taking action and then only sell (buy) if the price is still below (above) the limit you nominated. You might also like to specify volume, time of day (eg. don't trade near the open or close, for example) or any other conditions you feel are relevant.

Some brokers are also happy for you to let them exercise their judgement as to whether the breakout is "real" or not although if you do that you have to accept that sometimes the broker will get it wrong and YOU will lose if they do.

If you want to place this type or orders then I suggest that you use a full service broker or alternatively a service such as DataTech which is effectively a "human" broker that can take complex instructions etc. but with the actual trading done online via E*Trade.

On another matter, the fact that sharp movements are occurring in various stocks lately suggests that the next major market move could well be DOWN. Of course there are still attractive stocks around which will rise but be wary of big name blue chips commonly held by the "mums and dads" IMO. A lot of those stocks would be held via Commsec and subject to electronic stop loss orders and therefore have the potential to fall hard and fast once the stops start triggering.

LOLOL

This is a common occurance in futures markets...Just part of the landscape.

Can't see what the fuss is about, the systems (ComSec computers) may execute the instructions via the ASX but it's the humans that enter the instructions (us, the clients). Most mum and dad investors wont have mechanical or fully automated trading systems so it's not like it's technology running wild.

I do recall comments about blaming automated trading platforms (even blamed for the 1987 crash), some discussion by Wayne and others somewhere on ASF about what would happen if systems crashed or went berserk, worth a read.


I think the conditional stop loss orders that ComSec have introduced are great and will help people preserve capital, provided you know how to use stop losses properly (which is quite hard at times). After all, the prices in the cases cited above did stabilise.

The unfortunate thing about this article appearing in such a widely read publication is that some will view it as a reason NOT to set a stoploss when they buy.

That is, of course, until they learn the hard way that stoplosses will generally save your capital

Stop/losses are only good if their is trading in the stock. In 1987 with the crash no trading occured for at least 30 to 40 minutes, there were no buyers. You could buy BHP $3.50 when it closed the day before at $6.50 .If your stop/loss was say at $6. the day before and people are only prepared to pay $3.50 on that first day of the crash, you have missed the boat. Stop/losses do not always cover you. Regards KOOKA

just as kooka says, like any stop if its to tight, and there is slippage you will get, for a better term, "leap frogged"

kooka & roofus,

I agree there are some isolated examples where stoplosses may hurt your portfolio, but I couldn't use them as an argument to cease using them altogether. The 87 crash is one example of stoplosses being ineffective - but to take one incident 22 years ago as a reason to abandon the idea of stoplosses altogether is not good enough reason IMO.

I have never seen a trading system, plan or strategy that works 100% of the time, and stoplosses as an idea are no exception. When considering the 87 crash, also consider the charts of ION or CMQ - examples (much more recent too) of stocks where a stop would've saved capital.

1927
1987
1997

3 x in 80 yrs could have cost me if I set stops---say 10 times to be over the top.

Could have cost me 1000s of x in the 80 yrs had I NOT used one.

This is a problem?

Perhaps the only solution is for all of us to become screen watchers and "manually" set automatic stop loss lines. A bit of a contradiction in terms but I think you know what I mean