You can't assume anything. In a news event your stops may be triggered when price is far away from your stop. That's why stops are not very effective (as protection) and oftentimes it's just better to either wait or try to work out of position. This is just part of trading.
I'm not talking about news events as such, the price move is never as dramatic as a flash crash of 10% +. That's 30% on a margined account. I can't see anyone waiting that out easily... Less margin is an option or always trade 2 stocks (1 long 1 short).
Been through 911, 2010 flash crash, and many other shock events carrying overnight positions. Most of them were net gainers anyway or scratches. I never have & never would use a hedge since my risk is controlled by my position sizing & exit plan. If you choose to use a hedge fine, there are plenty of successful traders that do not use them & some that do. "I don’t really like hedging. To me, if something needs to be hedged, you shouldn’t have a position in it". Stanley Drunkenmiller "Hedges can be expensive and good trades don’t need them, a good exit plan is the best hedge". Stanley Drunkenmiller
Your question makes absolutely no sense. How are you supposed to know when the Flash Crash will occur? If one knew, one would be VERY WEALTHY. I've said this before. In a flash crash, there is no way to get out of your trade. I repeat, NOTHING will get you out until it's done. Back in 2010, the crash was followed by a sharp recovery. But that's not a certainty. There might not be a recovery next time.
You're not supposed to know. That's why I'm essentially asking about insurance! A recovery is useless if you either get margin called or shit yourself and close at the bottom
I've never had any serious risk into any of these so I can't be helpful, but it's an interesting discussion. There are basically two cases here: Flash crash with quick recovery Flash crash without recovery Frankly, I would consider the first one more difficult to deal with as I assume there would be all around attempts to bust trades on the motivation that "the true price was not reflected in the trade", injecting additional non-determinism into an already difficult scenario. When it comes to interpreting the rulebook in one's favor, the big guys have all the advantages.
Alternatively he could buy DOTM puts as insurance on longs, or calls as insurance on shorts. They'll be extremely cheap and protect against a large downside swing.
I think the problem with all this for day trading is that stops are tight and positions are large (relative to account size). I don't see how anything can protect you within a day. So the only solution I can think of is to day trade prop money. Think of the split as paying for the hedge plus all the other benefits.
Flash crash happened in 2010. That's 10 years ago! Yes, it could happen again, but are you going to buy "insurance" for all your trades until the next flash crash happens? That might not happen for another 10 years from now. Hence why I said your worries made no sense in the earlier post.