Ahhh, the beauty of Forex. Another month, another flash crash.
We saw a flash crash right after the market opened. This time all swiss pairs were affected. In a very short time price moved even 100 pips. Of course, many traders were stopped out. That was another serious flash crash, the last one was just a few weeks back.
Just take a look at 1-hour timeframe:
And 1-minute timeframe:
Where are they coming from? In my opinion trading robots combined with a thin market.
There is no 100% method to avoid them because of their unpredicted nature.
Still, there are few things to remember.
The last two flash crashes took place when there was no active session (after the US closed and before Asia opened). This is a time when liquidity is low and spread are higher. There is no point to look for a trade during that time.
Another thing. During a flash crash, you may be tempted to jump in. Just don’t. That’s not a start of any strong trend. If you were stopped out, you might want to open trade in a new direction. Again, just don’t.
Spreads can be huge during flashbacks (we are talking about spreads even as big as 50-100 pips). Usually when there is a flash crash market is thin and this affects trading conditions like spreads.
There is no way to avoid them completely. One day you may be caught by this kind of move. That’s life 😉
They are pretty rare (we see them once every few months) but with more algo trading they can be more frequent.