Ask-based candles: building the missing half of the chart

[Shadow Trader]

Most platforms draw candles from bid prices. That's the price at which a sell happens. For long trades, entries happen at the ask, and the exit at the bid. For short trades, the reverse.

A long position's stop, which triggers on the bid, is visible on the chart. A short position's stop, which triggers on the ask, isn't. The chart shows a different price series from the one that governs the trade.

Some platforms offer an option to display the ask line. Few have a built-in ask chart. Third-party tools and custom scripts can generate one, with candles built from ask prices. Overlaying bid and ask candles shows the spread's behavior across the bar.

Doing this reveals a few things. How much of a wick on the bid chart is accompanied by a larger wick on the ask chart. How often the ask makes a high that the bid doesn't. And how the spread moves during the minutes around a news event.

For testing, the use of ask data for short trades and bid data for long trades gives a more accurate result than using one series for all.

That small correction can alter results for a system with tight targets.

Has switching to ask-based testing for shorts changed results noticeably?

[Amanhasnoname]

I built ask candles with a small script about eighteen months ago, mostly because I was getting stopped out on shorts at levels my chart said price never reached. Laying the ask series over the bid one was an eye opener. On quiet bars the two look like twins a fraction apart, but around the rollover hour the ask highs stretch way above the bid highs.

For testing, the difference was bigger than I expected. My short side on GBPUSD went from a decent looking edge to roughly break even once the entries and stops were judged on the right side of the quote. The long side barely moved, which made sense once I thought about which price each part of the trade really used.

So yes, it changed results noticeably, at least for a system with targets under five pips. I now treat any test that uses one price series for both directions as an optimistic first draft and nothing more.