Scenario analysis explores plausible futures before the market makes them urgent. In the risk module it prepares decisions — it does not predict the future.
Who this is for
- Traders running strategies sensitive to regime and liquidity.
- Those who want response plans defined in advance.
- Those who must coordinate risk across multiple asset classes.
In plain terms — You imagine a few realistic scenarios and decide what you would do in each. That way you avoid improvised decisions when stress arrives.
Prerequisites — Complete first silver-path (min.: max-daily-risk, max-drawdown, robustness, backtest). Foundation: bronze-path.
Practical method
Select 3–5 scenarios with different probability and impact. For each scenario define observable triggers and an operational action. Estimate effect on PnL, drawdown, margin, execution costs, and correlations. Prepare thresholds that activate size reduction, hedging, or tactical stops. Update the scenario map when macro or microstructure context changes.
Example — Base scenario: stable volatility; adverse scenario: rate shock and reduced liquidity. In the adverse case you lower leverage, raise cash, and cut aggressive orders. The decision is already written, so execution stays disciplined.
Card
- Objective: turn uncertainty into operational protocols.
- Key inputs: macro data, market regime, cost structure.
- Alert signal: scenario triggers violated in sequence.
- Typical mistake: treating scenario analysis as certain forecasting.
- Practical action: playbook with triggers and linked responses.
Gold path — Module: Advanced risk control. Part of gold-path.