It keeps following its rules — at crash speed. That's good if the rules include position limits and a maximum loss, because the bot enforces them without panic. It's terrible if they don't, because the bot will keep trading straight into the hole. And stop-losses can fill far below their trigger when prices gap.
What is a flash crash in plain words?
A flash crash is a price collapse that happens in minutes or even seconds — often followed by a fast partial recovery. Here's the mechanism. An exchange's order book is a stack of resting buy offers at different prices. Normally the stack is deep enough that selling barely moves the price. But when one very large sell order arrives — or automatic liquidations start triggering each other in a chain — the stack of buyers gets eaten through, and the price falls to wherever the next bid happens to sit, which can be far below. Crypto is especially prone to this because it trades around the clock on many separate exchanges, and thin moments like weekends leave the buyer stack shallow.
Why can a stop-loss fill far below its trigger?
Because a stop-loss is a trigger, not a guarantee. A standard stop says: "when the price touches $95, send a sell order." That sell then fills at the best price actually available — and in a flash crash, the buyers at $95 are already gone. Your order walks down the book and may fill at $88, or $80. The gap between the trigger you chose and the price you actually got is called slippage, and a crash is exactly when it's worst. Worked example: you hold $2,000 of a coin with a stop 5% below entry, planning to lose at most $100. In a crash the stop fills 15% down instead — a $300 loss, three times the plan. Your sizing has to assume that can happen.
What rules make a crash survivable?
Rules that cap the total damage, not just the loss on one trade. The useful ones mirror what stock exchanges call circuit breakers: a maximum daily loss (stop all trading once the account drops, say, 3% in a day), a maximum position size (no single trade big enough to be fatal), and a halt condition (stand down when price moves some extreme amount in minutes, instead of "buying the dip" into a falling knife). A bot enforces these at machine speed and without argument — and that's the genuinely good news. A human watching a crash negotiates with their own rules in real time; a bot doesn't.
How do you size positions so one wick can't end you?
Work backwards from the worst fill, not the planned one. Say your account is $10,000 and you risk 1% per trade with a 5% stop: the position is $2,000 and the planned loss is $100. Now assume crash slippage makes the real loss three times bigger — $300, or 3% of the account. Painful, survivable, and the bot lives to trade the recovery. If you had risked 5% per trade instead, the same slippage costs $1,500 — 15% of everything, from a single wick.
