Flash Crash vs day-trader reaction time
- Thread starter ktomi
- Start date
kinggyppo...
Thanks for this! This is exactly the sort of thing I was hoping for!
I am trying not to let it giving me too much confidence, but this doesn't seem that brutal. It is at the end, but if I had been stupid enough to hold a long position, still I would have had a chance to exit with a reasonable loss by the look of it.
Thanks for this! This is exactly the sort of thing I was hoping for!
I am trying not to let it giving me too much confidence, but this doesn't seem that brutal. It is at the end, but if I had been stupid enough to hold a long position, still I would have had a chance to exit with a reasonable loss by the look of it.
"But even so, even with a stop, what's your estimate, what's the maximum loss in terms of points movement I could encounter in a worst case scenario? Let's say I place my stops 10 points away from my entry! Will my stop even fill at all? Will it fill with a reasonable slippage, e.g a slippage of 0, 1, 10 or 100 points?"
This is a legit question, you say you have been trading for days? I would suggest a 2-3 point stop on es for a scalp. Have you traded before? Do you have a daily loss, the mkt is not an ATM machine and will get you when you're guard is down. execution risk (buying when you meant to sell is a factor as well). Good luck take it slow.
http://www.investopedia.com/articles/trading/06/stopplacement.asp#axzz1Wl5jamXa
http://chartshark.com/1352/how-to-set-stops/
http://stockcharts.com/school/doku.php?id=chart_school:technical_indicators:average_true_range_atr
This is a legit question, you say you have been trading for days? I would suggest a 2-3 point stop on es for a scalp. Have you traded before? Do you have a daily loss, the mkt is not an ATM machine and will get you when you're guard is down. execution risk (buying when you meant to sell is a factor as well). Good luck take it slow.
http://www.investopedia.com/articles/trading/06/stopplacement.asp#axzz1Wl5jamXa
http://chartshark.com/1352/how-to-set-stops/
http://stockcharts.com/school/doku.php?id=chart_school:technical_indicators:average_true_range_atr
Historically a 30 or 40 point stop will rarely be hit and if you have an edge then you can usually exit before such a large stop is hit.
The traditional way to manage this is by managing your leverage. Also, sometimes a stop hit is not all that bad.. if you get good managing stops then you can often get stopped out and jump right back in at a better price.
If you can't stand a 30 or 40 point move against you then you will for sure need to use stops. Use market stops. From sources I heard, that the ES trades every level even when it moves fast. I'm also concerned about the risk in such large price jumps.
I've noticed they have increased over the past year and you will get hit by one eventually. Best have a plan.
You might also submit a stop to the exchange. if it is sitting 30 points away then you are likely to be in the queue early I'd say.. not sure how that works, sorry.
I agree this is a serious concern that bears some thought. If you don't like taking a large steep losses (I don't) then it may be possible to hedge with options or use another contract month. I'm not sure how to do that.
maybe you would buy a future month if the market didn't move as much to hedge... not really sure.
PS: There is no way you can react to these events in time. I was long today when the market jumped watching the DOM. I couldn't even adjust my target up.
The traditional way to manage this is by managing your leverage. Also, sometimes a stop hit is not all that bad.. if you get good managing stops then you can often get stopped out and jump right back in at a better price.
If you can't stand a 30 or 40 point move against you then you will for sure need to use stops. Use market stops. From sources I heard, that the ES trades every level even when it moves fast. I'm also concerned about the risk in such large price jumps.
I've noticed they have increased over the past year and you will get hit by one eventually. Best have a plan.
You might also submit a stop to the exchange. if it is sitting 30 points away then you are likely to be in the queue early I'd say.. not sure how that works, sorry.
I agree this is a serious concern that bears some thought. If you don't like taking a large steep losses (I don't) then it may be possible to hedge with options or use another contract month. I'm not sure how to do that.
maybe you would buy a future month if the market didn't move as much to hedge... not really sure.
PS: There is no way you can react to these events in time. I was long today when the market jumped watching the DOM. I couldn't even adjust my target up.
Quote from ktomi:
Hi,
I have been daytrading the S&P E-mini futures (CME Globex, Ticker Symbol: ES) for a few days. I am newbie amateur trader and I need some advice.
I am concerned about a possible flash crash or any uncontrolled sudden movement of the market. I am talking about movements when the price shoots right out of the chart window within one bar.
In order to play it safe I don't hold any open positions:
- At major market opening times, e.g. New York, London, Tokyo Stock Exchange opening times etc.
- At 'Market Moving Indicator' release times, which I look up from an economic calendar.
Does anyone have any screenshots of the 2008 flash crash on a 1-5 minute chart by any chance? That would be great!
It may be silly, but I don't use protective stops. If the market doesn't move as I expected, I just manually close the position. Maybe this is what I should do, have an emergency stop in place.
But even so, even with a stop, what's your estimate, what's the maximum loss in terms of points movement I could encounter in a worst case scenario? Let's say I place my stops 10 points away from my entry! Will my stop even fill at all? Will it fill with a reasonable slippage, e.g a slippage of 0, 1, 10 or 100 points?
If you have any advice or comments, please reply.
Thanks in advance.
+1. A black swan will come along one day and the market will gap down 5% during EST market hours. Options are the best way to hedge since stops will be useless. stops were useless the morning of 9/11 since the ES gapped down. can you imagine how bad it would've been for all the people trading the ES w/ $500 margins if it happened after 9:30?
kinggyppo...
Yeah, if it doesn't move as I expect, then it's about 2-3 points where I quit my position. I would say my emergency stop would be somewhere 5-10 points from my entry.
I have tried spread betting, but the spread makes it difficult and I don't trust those institutions. The futures market place seems more trustable and reliable. Plus there is no spread, just the execution fee.
I do have losses sometimes, but usually I am able to exit at breakeven and loosing just the fee for the round trip. If I make a mistake and the market moves the other way, sometimes I have a loss of 1-2 points, but this has been rare so far.
Taking slow is a good advice, and that's what I am trying to do. I rather miss an opportunity than jumping in at the wrong time.
And thanks for the links!
stock777...
Yeah, that's how it seems. Good advice.
Lucias...
Thanks for your comments.
It's not that I can't stand a 30-40 points move, but I don't want to, because then I have to work several days to gain that back. Also, once the market moves that much, then things are out of my control and I just want to be out immediately.
Hedging with options keeps getting mentioned. I still haven't looked it up, but it still looks unnecessary and too complicated. I might be wrong.
FrankSlaughtery...
Yeah, unexpected events can and surely will come along. But I think they are rare and with appropriate precautions one can be prepared for them. I believe if someone can make a daily profit, it's possible to be profitable overall, even though such events occur from time to time.
And to all:
Thanks very much for your replies, they are all very useful, I haven't expected so many constructive responses.
Yeah, if it doesn't move as I expect, then it's about 2-3 points where I quit my position. I would say my emergency stop would be somewhere 5-10 points from my entry.
I have tried spread betting, but the spread makes it difficult and I don't trust those institutions. The futures market place seems more trustable and reliable. Plus there is no spread, just the execution fee.
I do have losses sometimes, but usually I am able to exit at breakeven and loosing just the fee for the round trip. If I make a mistake and the market moves the other way, sometimes I have a loss of 1-2 points, but this has been rare so far.
Taking slow is a good advice, and that's what I am trying to do. I rather miss an opportunity than jumping in at the wrong time.
And thanks for the links!
stock777...
Yeah, that's how it seems. Good advice.
Lucias...
Thanks for your comments.
It's not that I can't stand a 30-40 points move, but I don't want to, because then I have to work several days to gain that back. Also, once the market moves that much, then things are out of my control and I just want to be out immediately.
Hedging with options keeps getting mentioned. I still haven't looked it up, but it still looks unnecessary and too complicated. I might be wrong.
FrankSlaughtery...
Yeah, unexpected events can and surely will come along. But I think they are rare and with appropriate precautions one can be prepared for them. I believe if someone can make a daily profit, it's possible to be profitable overall, even though such events occur from time to time.
And to all:
Thanks very much for your replies, they are all very useful, I haven't expected so many constructive responses.