Hi guys, hi from Andrea Unger! People know I’m a systematic trader, so sometimes they ask me if trading systems should always be running.
This is a tough question, actually. Generally, the answer is yes. Trading systems should always be running.
However, there are some special cases when we can expect higher degrees of volatility in the market. Some instances are the Brexit Referendum and the American elections Donald Trump won in 2016.
On such occasions, the moves that take place have nothing to do with normal market moves. So, given that we build our trading systems resting upon the specific identity of each market, so expecting the markets to continue move the same way they normally do, our systems become useless. It would be like driving a Ferrari car on a country road. You have a gorgeous car, but you are using it in the wrong place.
So, actually, on such occasions common sense tells us that it would be better to switch the systems off, flatten our positions and wait for the market to go back to normality.
In specific cases, you may consider another possibility and take the surprise effect into account. This means that you may open some positions in the direction of a surprise result.
For instance, in the American election case, Hillary Clinton was expected to win. This means that, if she won, the markets would have not skyrocketed. So, if you opened some short positions, you could have kept them open and be reassured that they would show an interesting gain, in case Donald Trump won.
However, this is the wisdom of hindsight. So, I suggest that whenever you expect that some specific events will cause market turbulences, you switch everything off and wait for things to go back to normality.