Every figure and every claim this video puts on screen, with where it comes from.
Three kinds of thing appear here and they are labelled on screen as well as in this file, because the difference matters more than any individual number:
A stop order becomes a market order when the stop price is reached. Stated by the SEC’s Office of Investor Education and Advocacy: “When the stop price is reached, a stop order becomes a market order.”
The stop price is not the execution price. Same source: “The stop price is not the guaranteed execution price for a stop order. The stop price is a trigger that causes the stop order to become a market order. The execution price an investor receives for this market order can deviate significantly from the stop price in a fast-moving market where prices change rapidly.”
A stop limit order can fail to fill. Same source: a stop limit order “becomes a limit order that will be executed at a specified price (or better)”, and “may not be executed if the stock’s price moves away from the specified limit price, which may occur in a fast-moving market.”
Source: SEC Office of Investor Education and Advocacy, Investor Bulletin: Stop, Stop-Limit, and Trailing Stop Orders. https://www.investor.gov/introduction-investing/general-resources/news-alerts/alerts-bulletins/investor-bulletins-15
The gap between the level and the fill drawn on screen, six pips, and the seventeen pips it widens to as the book thins, are illustrative. They show the direction of the relationship, not a measured slippage figure for any instrument.
Both were introduced by J. Welles Wilder Jr. in New Concepts in Technical Trading Systems (Trend Research, 1978), which is where every definition used on screen comes from.
True range is the greatest of three measurements: the current high minus the current low; the absolute value of the current high minus the previous close; and the absolute value of the current low minus the previous close.
Why the previous close is in there. A bar’s own high minus low measures movement inside that bar only. When a market opens away from where it closed, the distance price actually travelled starts at the previous close, and the bar’s own range understates it. True range was defined to capture that, so a gap or a limit move is measured rather than ignored.
Average true range smooths it. Wilder’s smoothing over a fourteen period lookback is the previous ATR multiplied by thirteen, plus the current true range, all divided by fourteen. The first value has no previous ATR to work from, so it is seeded with the arithmetic mean of the first fourteen true ranges.
ATR as a share of price. Dividing ATR by the current price turns a distance into a percentage, which is the only form in which the same figure can be compared across instruments quoted on completely different scales.
Sources: Wilder, New Concepts in Technical Trading Systems, 1978. https://books.google.com/books/about/New_Concepts_in_Technical_Trading_System.html?id=WesJAQAAMAAJ Formula and seeding as documented at https://www.macroption.com/atr-calculation/ and https://www.macroption.com/true-range/
The ATR percentages shown for the four instruments, 1.90% for a stock, 0.88% for an index, 0.49% for an FX pair and 3.67% for a crypto asset, are illustrative. They come from generated series chosen to sit in plausible ranges for those four asset classes, and they are on screen to show that one fixed distance means four different things. They are not the current ATR of any named instrument.
The chart used throughout, an FX pair basing at 1.1013, a stop typed at the round number 1.1000, a wick to 1.0995 and the move afterwards, is illustrative. It is built so the geometry the video is about is exactly visible: an entry at 1.1038, one ATR of 54 pips, a stop 38 pips away which is 0.70 ATR, and a low that reaches 0.79 ATR below the entry.
Every one of those relationships is arithmetic on the invented prices, and each is drawn from the same numbers rather than typed on separately. No claim is made that any market did this.
The buffered stop the video builds, half an ATR below the level at 1.0986, is 52 pips from the entry, which is 0.96 ATR. That it survives the low while the round number stop does not is a property of the chart as drawn.
The only non-illustrative numbers in the video come from a stated model, labelled simulated on screen while its result is shown.
The model. A zero drift random walk. Ten bars, three sub steps in each bar so a level can be touched inside a bar rather than only at a close, two thousand independent paths. No trend, no news, no edge in either direction.
Distances are quoted in ATR of the walk itself. The bars the walk produces have their own true range, and the mean of those true ranges is what one ATR means inside the model. Quoting distances that way makes the result scale free: the per step volatility cancels, so the answer is a property of the model rather than of a volatility number chosen to produce it.
The result. A stop is counted as taken out if the path reaches it at any point in the ten bars.
| Stop distance | Share of runs stopped out |
|---|---|
| 0.25 ATR | 84.4% |
| 0.5 ATR | 78.3% |
| 1.0 ATR | 66.3% |
| 2.0 ATR | 45.5% |
| 3.0 ATR | 26.2% |
Every one of those exits happens with no direction in the market at all, which is the entire point of running it with zero drift.
What this does and does not say. It says that a stop placed inside the distance an instrument covers anyway is reached most of the time by ordinary movement, and that moving it further out reduces that sharply. It does not say what happens in a real market, it does not measure any instrument, and the numbers move with the horizon: ten bars is the holding period the model was run over, and a longer one raises every figure in the table.
The relationship shown, risk divided by stop distance equals position size, is arithmetic rather than a claim, and it holds by definition: the money at risk is the position size multiplied by the distance to the stop, so fixing the first and choosing the second determines the third.
The worked example, a 10,000 account risking one per cent, which is 100, over a 52 pip stop giving 19,196 units, is illustrative in its inputs and exact in its arithmetic. Doubling the stop distance to 104 pips halves the size to 9,598 and leaves the money at risk at 100.
Stocks and indices. The NYSE core trading session runs 09:30 to 16:00 Eastern Time, Monday to Friday, with the exchange closed on listed holidays. Price can move between a close and the next open with no book in between. Source: https://www.nyse.com/markets/hours-calendars
Forex. The interbank week runs continuously from Sunday evening to Friday evening and is closed over the weekend. CME’s FX contracts trade Sunday 17:00 through Friday 16:00 Central Time with a daily break. Source: https://www.cmegroup.com/trading-hours.html
Crypto. Spot venues operate continuously, with no daily open or close and no weekend. Source: https://www.coinbase.com/blog/24-7-futures-trading-has-arrived
The weekend gap drawn on screen, a market reopening 54 pips below a stop level, is illustrative. It shows what a gap does to a resting order rather than reporting a particular weekend.