I'm worried

[Overnight]

Yes, I am worried because I am profitable doing swingtrading and I fear a black swan event. My worst nightmare would be a tremendous gap that would erase my account and far exceed the guarantees of my futures contracts. How do you sleep with that? Is there any formula? What percentage of your account risk? There is an extensive debate here, think that in all roulettes there is a green box.View attachment 212000

The formula is having a very very large account relative to the potential impact of the black swan on your account. If you don't, then you have to hedge, period. I've lived through 3 "black swans" (if you could call them that) in the last 21 months, unhedged. Was not comfortable at all.

As for same-o's comment, well, it is all relative. Being in huge profit on an open unhedged trade could keep some folks up at night. Does that mean they should not do it?

 

[tomorton]

Are you able to open an account with a broker who offers negative balance protection? This is now mandatory for all UK brokers.

 

[comagnum]

Black Swan?

Circuit breakers (trading curbs) were put into the market after the 1987 crash.

The max loss overnight on the stock indexes is -5% at which point trading is halted. The day session levels are -7%/-13%/-20%. Your are exposed to more risk in the regular session.

I hold winning positions overnight because I am a complete hog - I prefer to nearly double my gains & maximize the crap out of the commission & exchange fees. I would lose sleep by not having any exposure to overnight profits which far outpace the losses.

 

[qlai]

I've lived through 3 "black swans" (if you could call them that) in the last 21 months, unhedged.

Lol, no I don't think these would qualify

 

[Overnight]

Lol, no I don't think these would qualify

In the context of a swing, yes, they were 'black swans", in my mind. What you seem to be speaking of is a flash crash?

 

[themickey]

How come SPY which is a day only ETF, runs higher than red line? What is the day only red line? Is that futures day only?
Only mention as I can't imagine SPY outperforming SPX.

 

[comagnum]

The SPY (green line) is overall, meaning both day and extended session.
The day line (red) is open -to-close only.

 

[imjohn]

Yes, I am worried because I am profitable doing swingtrading and I fear a black swan event. My worst nightmare would be a tremendous gap that would erase my account and far exceed the guarantees of my futures contracts. How do you sleep with that? Is there any formula? What percentage of your account risk? There is an extensive debate here, think that in all roulettes there is a green box.View attachment 212000

Depends on the liquidity of the trading instrument and the leverage used (margin level per contract).

If I was leveraged to the hilt and trading illiquid instruments overnight (or even in RTH), I would expect an account-ending event to occur at some point in time.

But I'm trading a liquid instrument while maintaining a conservative level of margin per contract (adequate to handle multiples of the prior black swan moves established in market history).

Two very different games.

 

[bln]

Yes, I am worried because I am profitable doing swingtrading and I fear a black swan event. My worst nightmare would be a tremendous gap that would erase my account and far exceed the guarantees of my futures contracts.

I solve this by swing trading broad indexes like S&P 500 and Nasdaq 100. The more constituents an index got the more cushion. I don't expect a larger gap than 4% to open print, so if the trade is sized correctly the damage is contained within 1-15% depending where one sets his own risk mandate.

 

[ironchef]

Black Swan?

Circuit breakers (trading curbs) were put into the market after the 1987 crash.

The max loss overnight on the stock indexes is -5% at which point trading is halted. The day session levels are -7%/-13%/-20%. Your are exposed to more risk in the regular session.

I hold winning positions overnight because I am a complete hog - I prefer to nearly double my gains & maximize the crap out of the commission & exchange fees. I would lose sleep by not having any exposure to overnight profits which far outpace the losses.

View attachment 212034

View attachment 212033

I did the same calculation on SPY from 1993 to 2019. I don't think I get the same dramatic result as what you showed.