Algo traders: What risk management are you using to manage crisis like Flash Crash

Also, I wanted to mention that differentiating between actual crash vs. bad market data vs individual stock/sector is an interesting challenge(assuming your reaction time needs to be at least sub-second).
 
schizo said:
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.

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this is under the automated trading sub forum. Why would you feel anything; it's automated. Why would you even need to look at charts and prices; it's automated
 
2rosy said:
this is under the automated trading sub forum. Why would you feel anything; it's automated. Why would you even need to look at charts and prices; it's automated
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My point was, in response to your claim that your order "could get filled", that in a dire circumstances like Flash Crash, which is very different than a normal panic (but still orderly) selling, there is ZERO chance of getting your order(s) filled, ie. getting out of a losing trade.
 
qlai said:
I have max_spread parameter for liquidity taking algos that would prevent them from entering.
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What instrument do you trade? Is your algo high- or low-frequency?

qlai said:
Also, I wanted to mention that differentiating between actual crash vs. bad market data vs individual stock/sector is an interesting challenge(assuming your reaction time needs to be at least sub-second).
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Since my algo is set up to trade only index futures, I don't have such a problem but you brought up a good point. During Flash Crash, all my data (from 3 different sources) were either frozen or massively delayed. The best thing to do is to pull the plug before it happens, but I'm not sure how you can safely differentiate between the real thing and noise, which we're seeing a lot these days. And if you're already in a losing trade, I suppose there's really nothing you can do but to suck it up.
 
schizo said:
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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that's what i keep saying. It's all about filling and how much slippage are you getting. You're just agreeing here :)

Which is why i said that the only way to protect yourself is to just trade long options and delta hedge it. So, your strategy is basically long vola. Then you'll benefit hugely in situations like that.
 
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