Shorts on the bid chart: the half pip nobody counts

[Fairman]

Shorts on the bid chart: the half pip nobody counts

Most platforms chart the bid price. A buy fills at the ask, a sell fills at the bid. That means long trades have the spread built in at entry and visible at exit, while short trades hide it differently.

For a short, entry at the bid matches the chart. The exit, buying back, happens at the ask, so price needs to fall by the amount of the spread for the trade to break even. On a chart showing only the bid, a stop that looks like it has not been touched can be hit because the ask moved above it.

That is the source of many "the stop was hit but price never reached it" complaints. The chart showed the bid, and the stop triggered on the ask.

The fix is simple but rarely used. Add the ask line to the chart, which most platforms allow in the chart properties, and keep it visible. The distance between the lines is the spread, and it becomes obvious when it is widening.

Some traders chart the ask for shorts and the bid for longs. Others trade from a mid price in their heads and accept small differences.

A related detail: the ask is also where long stops trigger on shorts and where short covering occurs. Many apparent stop runs above a level are simply the ask crossing a stop that the bid chart never reached.

Has a short trade ever been stopped out by an ask price that the chart did not show?