Black swan resilience

Hello experienced traders

Considering the fact there’s been a bull run for the last 8 years, it prompts me to consider strategies that aren’t going to get smashed by the next black swan event (probably something to do with little rocket man I’m guessing).

I understand that risk can be mitigated by using stops and/or hedging (using options etc (David Juday does a good job with this)).

What are other red flags exhibited by some strategies on here which might inhibit their resilience to a market crash?? What experiences have people had that can help others protect themselves? Are certain strategies likely to tank in a 2year bear market for instance?

I don’t want to be over exposed when the time comes… and it will…

Thanks for your input.

An effective way to notice how systems could behave during a market crash is to check carefully the spikes in the equity line. Spikes usually suggest over-leveraging of the system (that You really do not want to have during such event) and/or poor money management of the system.

That’s a loaded but very good question. Do you want the truth? There really is no way to rely on a trader that you don’t know, are subscribed to for $100-300 bucks a month (pros see this as lunch money) and so forth. You will need to hedge your own systems for this type of event. There’s the truth. If you would like to discuss please PM me. I’m not marketing, I just have a thing for people getting burned in the markets. My early relatives lost everything with financial advisors during 2008.

I would advise that OP choose a strategy from: 1.Futures;2.mainly trade commodities.

Because futures strategies could avoid overnight risk.
Commodities strategies could avoid downturn in equities market.

I agree with this entirely. I maintain a Tradestation account that I use some for discretionary trades of my own, but also to hedge C2 systems. If a system is long 500 XIV into a weekend I’ll buy 5 VXX at the money calls near Friday close which is only about a 50% hedge (option delta 0.5 … buy deeper in the money calls for a greater hedge). This can backfire if XIV opens much higher on Monday, but hedges aren’t free and I sleep a lot better with things like N. Korea going on, and Trump generally being an unpredictable loose cannon.

Hedging with options is a great choice, like what David Juday does. Another way and the approach I take with my overall portfolio - not necessarily each strategy I publish - it to always have a broad asset allocation. This idea first really sunk in for me when I read Ray Dalio’s comments about his All Weather Portfolio. In that portfolio, he recommends index funds for 40% long term bond 30% stocks, 15% commodities, 7.5% gold, and 7.5% commodities with a one year re balance. He talks about how different components of those strategies do well at different times and in nearly all market conditions part of it is doing well. My backtests appear to agree with him.

Most of us probably find that portfolio a little boring - me to. So, I edited it a little to fit me. I feel that I know enough about stocks and volatility trading to outperform the 30% stock component. So, I pretty much follow that portfolio, but have replaced the stock index fund with my own stock and volatility methods. Obviously this reduces my returns, but it also minimizes my draw downs. Even if I am 100% wrong and lost all my money on my stocks and volatility then 70% of my portfolio would still be around and likely have gone up from a stock market recession. I am not recommending that you necessarily follow this exact approach, but the concept.

I worry that there are subscribers out there that put a large portion of their net worth in a single strategy or multiple strategies in the same category, which will all perform similarly in a black swan event. Now if you are rich and/or experienced like Warren Buffet it doesn’t matter as much if you are concentrated because you can handle the draw downs financially and mentally.

The other thing you can do to have black swan resilience is to not invest in stuff that sells naked or uses margin. I find those strategies far too risky for my desired outcomes. Though I know some of the ones that do take these risks, manage to do it well.

Obviously this is all my biased opinion.

Also agree … diversification using uncorrelated assets is an absolute must, especially at C2 where most systems are relatively new (although there are still a few around from my first rounds at C2 back in 2005-2006 where it really was the wild west of autotrading).

Correct. However, if the trade leaders are really good - they will constantly hedge into the close. You can ask @KarlA who is subscribed to my VIX program (we will get there, Karl) and he will tell you that I am not only hedged into every market close, but also on the weekends, and with intraday moves.

However… again… you cannot depend on the overwhelming majority of trade leaders for the reasons that I stated and you should assume you have open risk on any system that holds beyond the day, or even on the day.

so what does this mean? it means you really shouldn’t subscribe to systems that can’t give you the bare minimum levels for their own plays before market open etc.

Note: This is indeed why I am underperforming currently on the VIX program, I have paid about $1000 worth of now useless hedges, but the program has massive upside, and massive upside means danger without hedges. It takes patience and a willingness to appear less flashy to do things right. Reality.

edit: I have to add something here (this is really a good topic) people need to understand that simply covering a position doesn’t mean anything, specifically in options, another reason why I have dual hedged the VIX program by adding additional futurues hedges or cash etf hedges. here’s why… if the markets move VERY quickly, you will have low liquidity options plays with severely wide markets, you can’t guarantee fills until the chaos calms down. however, if you have a cash position along this, you are very likely to be able to close that position out, and this is why I dual hedge. Futures, same thing - no worries for the most part. So you brought up options, and that is great, just keep in mind if things got really saucy, you might be surprised. You are better off hedging into the close, or on the weekends with an inverted cash position. just FYI.

I can confirm everything TradePRO is saying and I am comfortable with the present draw down, BTW, his other 3 strategies are all in the green, one of them I also auto trade. Why would anyone not want to subscribe as long as they are free if for no other reason to see his trading activity which I find quite impressive.

Thanks Karl. There’s no need to rush subcriptions, I am enjoying this platform either way. But this is again a very good topic. I think C2 should look into autohedge options for subscribers, whereas they can limit losses, choose overnight hedges, or for weekend risk etc. This would be an advanced feature that really would not be beneficial to their bottom line in regards to revenue, but it sure would be amazing.

edit: it is - by far - the largest reason for blackswans I have seen with programs on C2

Since C2 does not allow you to trade yourself in your auto trading account one way of being able to hedge on your own is to subscribe to, lets say a XIV system that uses options to hedge (hopefully at a low or discounted price), scale it down to a small percentage and then increase the hedging option position manually via the Open Position page do your liking at the end of the day which can be reversed the next day.

That’s right. They’d have to create a sub-account for this type of activity, or still allow the new trades in the account to be submitted by you, the end user. I’m suggesting 100% synthetic trades, no matter what the asset class. If the system is spread on some random stock via options, or volatility etfs, or nasdaq futures - the C2 platform can simply execute a synthetic hedge minutes into the close - you the end user chooses how synthetic is synthetic / how much will this actually be, meaning you choose if you want 1-100% fully synthetic hedges. These hedges automatically close at the open. It could still be thrown into your current account being autotraded, because the program would only allow 100% synthetic trades in relationship to the trades going on in the account.

Quite frankly, this is a genius idea. Here’s the deal though. Just like any business, nice to have features don’t make the cut unless they will contribute to the bottom line. If C2 demographics change, this would probably be something implemented overnight. Honestly… it’s hard for me sometimes to even find 100% synthetic trades depending on how many bridges I have laid down. The more bridges, the larger the network gets, and the harder it is to find a good draw string to pull them up. When I said hard, I just mean time. What takes me 1-2 hours of prep time could be dialed down to minutes. I would even consider executing from C2s platform with some capital if they introduced something like this! Seriously.

It seems ironic that one would trust a trade leader enough to subscribe to their strategy, but not enough to believe they are protecting appropriately. I understand that everyone has different risk tolerance levels, but why not just subscribe to strategies that are close to your own risk tolerance level? Just a thought. :slight_smile:


I meant to find a way to hedge your other long stock related assets (besides your preferred volatility system if any) in case of a black swan event.

Hi Karl, both of my strategies hold only volatility related products. I used to have small bond and gold positions as a partial volatility hedge, but have eliminated those after IB changed their margin requirements. Thanks, David.

David, don’t be smart with me. That is the majority of people on this platform, and you know it. I’m your competition, we all understand. Yes - if you really want to be able to INTRADAY and END OF DAY hedge your systems, then you should be able to get predetermined max pain levels from the traders. I can give these levels, no problem. Edit: good for you if you are hedging into the close, you would be in the 1 percentile. There are a ton of traders here claiming they are systematic, and they are not. I have asked around looking for programs myself. If the trader cannot give predetermined max pain levels, they are frauds. Plain and simple.

Hi David,
When I said “I meant to find a way to hedge your other long stock related assets” I did not mean assets from your system but I meant other assets a subscriber might have in his portfolio of different systems, in other words I try to find some sort of global hedge for the subscriber who trades many different systems as I do. You know that I value your systems since I trade one of them because you are one of the few who at least partially hedge their volatility position. I refuse to subscribe to any volatility system which does not at least partially hedges its position.

People literally do not understand. They will get smoked out badly if they follow the majority of the leaders shorting volatility. I’m just here to help people out. It’s possible in these circumstances to owe the broker more than is in the account. I shouldn’t have to deal with this for bringing that up.


Thanks for declaring the option seller problems on black swan evenhts. You will never see a black swan coming. Thats the definition of a black swan event. So rocket man will not cause a black swan event cause everyone is aware of this. A black swan event comes out of nowhere and the Option seller like me can get real trouble cause you cant trade for some hours cause of this illiquidy or you have huge huge spreads. On the other side a bear market like 2008 is good for option sellers cause the volatility increases there.
Against rocket man gold will help while in the flash crash on august 2015 gold havent moved and gold miners have gone down.
So there can be huge differences on all different type of events.