Do *you* hedge against a total *intraday* market crash?
- Thread starter giggollo
- Start date
Hello:
Most traders, especially retail traders are totally unprepared for an extremely adverse (also called a "black swan" or a "six sigma") event. As a result, they are usually casualities of thos events, and never recover. For those who are interested, take a look at your account balance and try to imagine what it might feel like to see it all disappear in a matter of minutes while you run around trying to get your phone to work, or reconnecting to the internet or worse yet you have an offsetting trade placed but no fill and you are just waiting (because you don't really know how or where to hedge).
knowing how and where to hedge, knowing your value at risk, and having a plan in place are simply part of the process of preparing to trade. If you don't have them, get it together. Start by reading the background material. Analyze your risk, develop a protocol for the emergencies that could take you out.
What sense does it make to have a backup power supply, a back up phone system, a backup broker, but no plan on how to react if there is a serious event in the markets?
Steve
Most traders, especially retail traders are totally unprepared for an extremely adverse (also called a "black swan" or a "six sigma") event. As a result, they are usually casualities of thos events, and never recover. For those who are interested, take a look at your account balance and try to imagine what it might feel like to see it all disappear in a matter of minutes while you run around trying to get your phone to work, or reconnecting to the internet or worse yet you have an offsetting trade placed but no fill and you are just waiting (because you don't really know how or where to hedge).
knowing how and where to hedge, knowing your value at risk, and having a plan in place are simply part of the process of preparing to trade. If you don't have them, get it together. Start by reading the background material. Analyze your risk, develop a protocol for the emergencies that could take you out.
What sense does it make to have a backup power supply, a back up phone system, a backup broker, but no plan on how to react if there is a serious event in the markets?
Steve
All this talk of maximum drops, is giving me the willys.
In April of 2000, I was still believing we could go higher. So, I was long. (Not very bright)
The NAZ market was dropping like a stone. My stop was hit. I got the exact price at which my stop was set. Totally amazed. The price just kept falling after I got out.
Because of that incident, I have more faith in the Merc's computers. Perhaps foolishly.
Mr. Buy1Sell2, you are not helping my sleep. I am going to have to bring a laptop to bed.
In April of 2000, I was still believing we could go higher. So, I was long. (Not very bright)
The NAZ market was dropping like a stone. My stop was hit. I got the exact price at which my stop was set. Totally amazed. The price just kept falling after I got out.
Because of that incident, I have more faith in the Merc's computers. Perhaps foolishly.
Mr. Buy1Sell2, you are not helping my sleep. I am going to have to bring a laptop to bed.
Oh, sorry, I didn't click on it. My bad.
Anyway, it is NOT 30%. At least you can not say as a rule. There are 7 scenarios, depending on the speed of the fall.
In Scenario #6 if the Dow fall 20% after 2 pm it closes for the day, thus the max. for that day is 20% and not 30%.
In scenario #1 if the Dow fall only 10% by 2 pm, there would be 1 hour halt and if they really reopen (what I would seriously doubt) in the last 1 hour it is anybody's guess how much it could fall. But not more than another 10% because there would be another halt and we have ran out of trading time.
My guess is that those halts were implemented to give time to try to found out, just what is the cause of the selling. In the case of a terror attack, there is no way they would reopen after a 1-2 hours halt. They would probably stay close for a few days just like after 9/11....
So as a summary, it is safe to say that they would halt trading after a 10% fall, except if it is rather evenly distributed and happens only after 2:30...
As a last point, the worst case scenario #7 is practically useless, because to fall 30% the market has to fall first 10% and 20% and there would be 2 1-1 hour halts, and there is no way that let's say around 3 pm after 2 halts they would reopen to see if it can fall another 10% in the last hour....