Algo traders: What risk management are you using to manage crisis like Flash Crash
- Thread starter schizo
- Start date
I'll let you figure that out by yourself.
well, i can try. Probably won't succeed, though
Ok, I can ask you questions as hints.
How can an algorithm know that there's a flash crash happening?
It won't.
flash happens, then it reacts.
if You're on the right side then you're making money. If you're on the wrong side then the questions is how much slippage are you getting with regards to your planned stop loss.
Doesnt really give you anything to define a flash crash by doing (avg vola) - (current vola analysis), does it when your live position is hurting.
flash happens, then it reacts.
if You're on the right side then you're making money. If you're on the wrong side then the questions is how much slippage are you getting with regards to your planned stop loss.
Doesnt really give you anything to define a flash crash by doing (avg vola) - (current vola analysis), does it when your live position is hurting.
Let me point you to this article. It links circuit breakers and levels of sudden changes in volatility.
A volatility that has been measured in advance in order to identify sudden changes to trigger the circuit breaker.
https://www.sciencedirect.com/scien...sh Crash” and concerns,as well as across time.
He'a talking about a FLASH CRASH.
if your flash crash 5min bar high-low = 100pts+ while your avg 5m bar has it 5pts AND the market don't fill you, why are you measuring that historical volatility for?
But it could fill, ie. data still could come, even amid a flash crash. I mean it could...
And normally such auto-trading uses shorter time frames or bar sizes, ideally streaming data.
It could, but it won't. If you haven't lived through that moment, you won't understand. There's no way to know whether this is just another orderly selloff or it's the REAL panic. Just take a look at this video and you can palpably feel the panic in the squawk.
If you use stop LIMIT, you won't get filled. It will just get skipped over. If you use stop MARKET, who knows where you'll get filled. Maybe 2000 points below (500 ES in 2010 equivalent to today?) after 5 to 10 minutes later???
It's very possible that 1 bad (unlucky) trade could wipe you out.
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I have max_spread parameter for liquidity taking algos that would prevent them from entering.
As far as exiting, nothing I can do but eat it(assuming your algo trades with stops).
BTW, we now have circuit breakers which we did not have during the flash crash. That would at least give you a chance to discretionary make some sort of decision.