Gap through a stop at the session open

[Fairman]

Gap through a stop at the session open

A stop order promises an exit at the stop price or worse, and the "or worse" is the part that bites at the Sunday open. Forex rarely gaps on weekdays, but the weekly open can open meaningfully away from Friday's close after weekend news.

A stop sitting at 10 pips on a position left open will fill at the first available price after the gap, which could be 30 or 50 pips away. The stop did its job technically, and the loss is still three to five times planned.

Scalpers who hold positions longer than intended, perhaps because a trade went slightly against the plan late on Friday, are exposed. So are accounts that leave pending orders over the weekend.

The cleanest rule is flat by Friday close. If that is impractical, size down heavily or hedge with options on a different account.

Also expect spreads on the Sunday open to be several times normal for the first minutes. Better to wait for liquidity before touching anything.

What is the standard weekend policy in your trading, and has a gap ever tested it?

[Amanhasnoname]

I got a taste of this one Sunday evening a few years back on a GBPUSD position I had meant to close on Friday but left because it was within a pip of breakeven. The weekend news was political, the pair opened more than 60 pips below Friday's close, and my 12 pip stop filled at around 55. The lesson cost me about five times what I had planned to lose.

Since then my rule is that I close everything by 20:45 London on Friday, with an alert on my phone at 20:30. If a trade is still open, the alert forces me to decide rather than drift. I also cancel all pending orders at the same time, because I once found a stale order triggered on the Monday open at a spread of 8 pips.

The Sunday open is something I now simply ignore. I do not look at charts until around 22:30 London, when the spread has settled.