1/1/19: 2010 Flash Crash Re-Post
Since the market may be heading into a bear phase, it’s appropriate to review the type of market behavior that results from significant down-trends.
We’ve already had a JP Morgan trader indicate that no-bids and flash crashes lay ahead during the next down move.
So, let’s review just what a flash crash looks and feels like. The following information was originally posted in January of 2016. It seems to be even more relevant now.
Details on the 2010 "Flash Crash" below:
Thanks go to Ryan Carlson former pit trader at www.tradingpithistory.com and to Vicki Semersky (Assistant to Andrew Waldock) at www.commodityandderivativeadv.com for their answers and input to our queries.
Taking it in overall market context, the 2010 crash was a “microburst” event in the midst of a rising market.
The 2010 crash did not come out of thin air but was built up over the trading day and finally unleashed between 2:00 p.m., and 2:45 p.m. EST with the most intense part (as shown on the video link below) taking place in the span of about five minutes.
Here is a link to what may be the best example of the crash as it happened. The voice calling the plays from the pit is that of Ben Lichtenstein, Tradersaudio.com (now available from www.thinkorswim.com)
The audio starts with him describing huge “paper” sellers coming into the market. ‘Paper’ is essentially anyone (banks, hedge-funds, institutions, and/or retail) outside the pit. Those in the pit are called “locals”.
We can clearly see and hear the crash being a series of events. Possibly most important is the crash happened after the market had a significant decline.
The market crashed after it was already way oversold
1/30/16, Flash Crash Research Paper
A new report has been released (still in Draft form) that provides more information on the 2010 Flash Crash. The link in this article yields a 43-page 'deconstruction' of the crash.