Flash Crash vs day-trader reaction time

If you have a stop in th ES mini, it should not run it.

There was the move in the morning that looking like a 15 point move in less then a minute. No one should have had their stops run past their price if they were on the DOM ladder
 
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. :confused:

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. :)
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ES STOPS are generally executed as a LIMIT order 3.00 points from your trigger price.

So, if you are working an order to SELL 5 ES-U1 @ 1169.75 STOP, should your order be triggered the software will SELL 5 ES-U1 @ 1166.75, which will hopefully fill at 1169.75, your stop price.

Therefore you should be concerned about anything greater than 3.00 points slippage, which would be extraordinary.

Frankly, you're probably going to lose all your money.

But good luck.

-H
 
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.
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Unnecessary??? You are wrong. Very wrong. If learning options to protect your hard earned money is too complicated you probably shouldn't be trading.

Options will save your ass.

You could buy a semi deep or deep OTM put on the cheap and trade without fear of a crash.

On a side note. I was trading DNDN (long on their approval by FDA) that day and the b/a did not move at all when the crash happened. As if they just stopped trading.

Few days later DNDN got approved made 140%. Wanted more but I'll take it.
 
Quote from FrankSlaughtery:

+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?
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Nope. The only tool is lower leverage, especially with IB. Bid and ask goes bonkers on options too, so options will be worthless to a computer. Flash crash = auto-liquidation if you can't handle a 5% drop without stops and without OTM options.

That said, if you use options to simply create a tool that will return money on a black swan event, that could be a valid reason for using options.
 
The silver flash crash was the worst I've seen, where it traded down $5-$6 in under 15 minutes I believe. Anybody who was long basically couldn't get out. Not sure if it was somebody sweeping the market or what happened but it was ugly, that's $30k on a 1 lot. So in that case a stop depending on where in the queue it was and how far down would've wiped any small account out.
 
Quote from grg03002:

The silver flash crash was the worst I've seen, where it traded down $5-$6 in under 15 minutes I believe. Anybody who was long basically couldn't get out. Not sure if it was somebody sweeping the market or what happened but it was ugly, that's $30k on a 1 lot. So in that case a stop depending on where in the queue it was and how far down would've wiped any small account out.
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Probably every "flash crash" in the past 30 years was caused by automated (or automatic, if not automated) positive autocorrelative "safety" strategies -- this includes the '87 crash (portfolio insurance), the May 2010 "flash crash" (market stop orders, after a cascade of other events triggered by a large-scale futures sale), and the silver "flash crash" (increased margin requirements causing cascading stop orders, automated or not).

In all of these cases, you've got people (or the automated mechanisms they/their brokers put in place) trying to "save their money" all at once. The paradoxical result is a crash.

Of course, most traders (not to mention many investors) won't want to hear this, because it means they shouldn't use so much leverage -- leverage so high that they feel forced to use market stops, portfolio insurance, etc.
 
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