GBPUSD Massive 600 Pips Fall In 1 Minute Caused By Algorithmic Trading

Today something strange happened. GBPUSD suddenly fell 600 pips in less than a minute during the Asian trading hours. Then it started recovering and recovered 350 pips in the next 30 minutes. In this post let’s try to analyze this GBPUSD Flash Crash. Did you read the post on a candlestick pattern that changed everything for me?

Flash Crash

No one was expecting this massive slump to take place. GBPUSD had started falling from the start of this week when it opened with a downward gap. Over the weekend, UK Prime Minister Theresa May had publicly stated that British people had given their verdict and there was no looking back. Briton is going to start Brexit proceedings from March 2017. This was the trigger that started the downward slump. On Tuesday GBPUSD reached it’s lowest level in 31 years. Market was expecting this downward slump to continue. Learn how to use a support vector machine in daily trading.

Then something strange happened last night. Last night according to my local time. In the evening when I checked the charts, GBPUSD was trending albeit with a slow pace. I expected the move to continue to 1.20000 level. When I opened the charts in the morning I was shocked to find a massive gap and GBPUSD trying to recover the lost ground. In less than a minute it had fallen 600 pips to 1.20000 level. There was no news. There was nothing unexpected. So what did happen? Did you download the Double Profit Levels Trading System FREE PDF?

So what happened? This is the most important question bugging the minds of most of us. There is speculation in the market as people want to unearth the mystery that caused this massive slump.  It is being speculated that this flash crash was caused by a fat finder or a massive barrier option that got traded during the Asian trading hours when liquidity is light. It could also have been a massive trade placed mistakenly. Most probably it was a low liquidity sell off that caused so much havoc in the market. After the sell off market was shaken and a violent reversal took place that we can see on the charts with GBPUSD back at 1.24000 level.

Traders are complaining that brokers are not allowing them to close their existing trades and open new ones. This is obvious brokers are also jittery as no one knows with surety what happened last night during the Asian market hours. Analysts had been expecting GBPUSD to fall to 1.20000 level since the beginning of this week. But the expectation was this will happen slowly over the next few months. No one expected this fall to take place in less than a minute. This has made everyone in the market jittery. Some people are blaming computer programs for doing this. Others think there was a greedy investor who had placed a massive bet. Things will become clear in the next few days so people start investigating what happened.

The History of Flash Crashes

Now this is not the first time that market has been surprised with a massive crash. A few years back when Swiss National Bank had unpegged Swiss Franc, it had also taken the market by surprise. On that day USDCHF fell more than 2000 pips in less than a minute decimating many brokers and traders. With the rise of algorithmic trading, these type of flash crashes have become frequent.

In 2010 a flash crash had taken place when Dow Jones and S&P crashed massively and then recovered in around 36 minutes wiping out many traders who were on the wrong side that day. That day DJIA fell a massive 600 pips in a matter of 5 minutes and then recovered those 600 points in the next 15-30 minutes. It is now being reported that that flash crash had been caused by a guy who was trading from his home in UK. The Flash Crash of 2010 has been thoroughly investigated now and the person who is thought to have caused it is facing criminal charges.

As said above this Pound Flash Crash of October 2016 will be thoroughly investigated by the regulatory authorities as the flash crash of 2010 was investigated and charges brought against a guy trading from home. Now this should open the eyes of the central banks and regulatory authorities and they should build protective systems that can reduce the likely occurrence of these flash crashes. It is possible this time again a guy trading from home gets blamed for causing this massive slump.  Did you watch the video tutorial on how to identify a Cypher Pattern?

Now the good thing. If you had been short, you could have profited massively. The most important thing is to trade in the right direction. When these type of things happen, there is always a warning candlestick pattern that tells you what is going to happen. Of course, the candlestick pattern can only tell you that there will be a fall. It cannot tell you how big the fall be. This is why we traders are always cautious. This means when you find a high probability candlestick reversal pattern, it is a signal to close your open trades. So as a trader you should follow risk management rules strictly. Today’s GBPUSD Flash Crash is just a reminder that anything can happen anytime and only thing that can save you from getting hit big time is to follow risk management rule of never risking more than 1% on a single trade. The best trading strategy is to go for low risk trades with a fixed take profit targets. Whatever, these flash crashes are what makes the market interesting. You never know anything can happen anytime.