I am trying to introduce a "circuit breaker" in my code to suspend EA operation if it detects unsual activity over a defined period of time, e.g. the "flash crash" of GBPUSD on Oct 6, 2016, and June 23 when the Cable fell off a cliff. Obviously with a major currency pair there will be times of volatility, so what should I set the parameters of the circuit breaker to? If the value of the currency changes by 10% over a 5-minute period, does that sound reasonable?
if the market is 1.2345 then 10% is 1234 pips. Yet the average daily range is in the 100 pip range.
Perhaps 10 ATR would be better.
I would be more than willing to bet that GARCH is the answer your looking for. it can be helpful in understanding volatility better and come to some ex-ante analysis and decision making beforehand. unfortunately it's an advanced model the math is beyond me and I wish I had the technical capability myself to implement it in my own trading.
I would use a value at risk distribution to determine whether or not market volatility is abnormal or not. mataf offers free data with most currency pairs for this. I'm afraid that any 'circuit breaker' wouldn't help in a flash crash scenario, because often times the market can gap an considerable amount and action can only be taken immediately afterwards.
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