I vividly remember The Great Margin Call of 2008. I also remember waking up each day during that financial crisis and watching the bloody red numbers racing across the CNBC screen.
Finally, I remember Warren Buffett saying that we were all about twenty-four hours away from going to our ATMs and having no money come out. It was a horrifying, mesmerizing time.
I was a trader at the time, but I wasn’t trading. I was deep into research at the time, and I won’t put anything in the market until I’ve tested it exhaustively. But the truth was: I was scared just like everyone else. Every day during the crisis I was happy that I wasn’t in the market. All along, I simply wasn’t ready.
Fast-forward to last Friday (August 21, 2015) and all the days up until today.
While I wouldn’t call it a crisis on the level of August, 2008, I would still say it’s been pretty intense. The Dow has been dropping in quantities not seen in years and newspaper articles about the markets have moved to the front pages. Hundreds of billions of dollars have been lost in a matter of days.
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This time around, however, I am in the market. This time around, I have robots that have been tested over 12 years of data.
Robots don’t get spooked and robots have reasons to keep on trading right through the mess. So, is that a good thing? How have the robots done during this crisis?
For clarification, I trade four different robots in separate accounts (the same ones I’ve traded for several months). I did not turn any of them off while I was on vacation and because I don’t turn robots off at all, unless I get an emergency notice from Tradestation or something dire along those lines. In short, I’ve turned my robots off exactly once this year due to any sort of potentially calamitous development.
Of course, not every robot or trading system does well in a crisis. But, if you choose a system with a good profit to drawdown ratio and a good Profit Factor, your chances get much better.
The bottom line is: If your system has been thoroughly tested, you should be able to weather a market meltdown. If you’re not sure, you can always go back to August-December of 2008 and see how your current system would’ve done. Your system probably won’t be perfect during that time, but it should hold up enough so that you could take every trade and come out okay on the other side.
Crises are scary and it’s easy to be scared out of the market or scared into trading your system improperly. But robots are never scared. They just go on to the next trade. And that’s a good trait to have during a meltdown.