CHART ART: XAG/USD Silver Flash Crash Edition. Was it a Fat Finger?

What is a Flash Crash?

After reading the headline to this post, I know a lot of you might be asking what the hell does it even mean when you say a 'flash crash'?

A flash crash is a very rapid, deep, and volatile fall in security prices occurring within an extremely short time period. A flash crash frequently stems from trades executed by black-box trading, combined with high-frequency trading, whose speed and interconnectedness can result in the loss and recovery of billions of dollars in a matter of minutes and seconds.

That first sentence is pretty much an exact description of what you will see in the 1 minute Silver chart coming up below. Patience...

When it first happened this morning during the Asian trading session, the chatter was all about it being a fat finger. Essentially suggesting that it was just an obvious error in a big player's order where he might have added an extra couple of zeros onto the end or something of the like.

A fat-finger error is a keyboard input error in the financial markets such as the stock market or foreign exchange market whereby an order to buy or sell is placed of far greater size than intended, for the wrong stock or contract, at the wrong price, or with any number of other input errors.

So might we have just seen a half asleep bank trader at 2am in London putting on an extra couple of zeros at the end of his sell order? As ridiculous as this sounds, these types of errors do in fact happen.

While financial markets have pretty much moved past the days where a single bank trader will be in his office alone punting for example, Deutche Bank's money by manually entering a silver short position, automated trading hasn't exactly minimised errors. They're just committed by machines rather than humans now haha!

It all has a very Skynet ring to it, doesn't it...

However, going back to the first Wiki article, I found this explanation of the 2017 Etherium flash crash most interesting:

On June 22, 2017, the price of Ethereum, the second largest digital cryptocurrency, dropped from more than $300 to as low as $0.1 in minutes at GDAX exchange. Suspected for market manipulation or an account takeover at first, later investigation by GDAX claimed no indication of wrongdoing. The crash was triggered by a multi-million-dollar selling order which brought the price down, from $317.81 to $224.48, and caused the following flood of 800 stop-loss and margin funding liquidation orders, crashing the market.

The Etherium example paints a flash crash as a more natural market event. Simply a large sell order hit an illiquid market that triggered endless stop loss orders and with no buyers to absorb them, price just kept slipping.

But I actually have a feeling that what we saw in Silver today was just a natural market event similar to this. Something I try to explain in my chart art analysis below. Yes we're getting there, still patience...

Isn't it ironic though, that after all the shit that physical Gold and Silver traders give to the crypto guys for their market's being unstable and illiquid, that this happened on Silver of all markets. The 3rd most traded commodity out there behind Gold and Oil.

Chart Art

So that's enough talk, let's FINALLY get around to looking at the charts. Obviously Silver is represented as XAG/USD in forex markets and that's what we're looking at below.

XAG/USD (SILVER)

I can't believe that my CHART ART posts featured Silver before I did a post on Gold. But if you haven't noticed, I don't do things the normal way :)

Because we're looking at a flash crash that is all about the intraday chart, I've presented my charts in reverse to the way I usually do them. Normally I'd go from a higher time frame first and then head into the intraday chart.

But here's the intraday chart for effect.

Are you ready?

1 Minute:

BOOM!

I'm sorry if you were leveraged up and short... Your account was just liquidated.

BUT SERIOUSLY, WHAT THE FUCK IS THAT?!?!

So now in reverse, let's take a look at the daily chart and try to explain it.

Daily:

As I said above, this actually looks more like a natural market event rather than a fat finger or human error. This simply looks just like a large sell order hit an illiquid market, then triggered endless stop loss orders. Then with no buyers to absorb them, price just kept slipping.

On the daily above, you can see that price was hovering at a confluence of support between both that daily trend line that has been in play since 2015 and horizontal support at the previous swing low from 2016. That's two pretty significant levels that years worth of orders would have been placed around.

There would have been a tonne of stops sitting just below this level and in illiquid Asian session trading, we know things can get out of hand quite quickly when sell orders all start triggering with nobody in sight to buy.

It's definitely a jungle out there!

Don't forget that the charts in Wednesday's CHART ART post are still in play so make sure you take a look at that post here:

• CHART ART: BTC/USD and STEEM/BTC.

Please leave a comment, share a chart or tell me your ideas. Blogging about markets is all about sharing ideas and making us see all possible angles of the same chart. I look forward to reading what you throw at me :)

Peace.