7. Surviving Macro Shocks: Law 3 in Action

Introduction

Law 3: Macro Shock Propagation (MSPL) empowers GUQFXP to react super‐linearly to genuine macro shocks while ignoring routine volatility. By detecting sudden VIX‐style jumps and instantaneously widening stops and freezing new entries, MSPL shields your portfolio from rapid drawdowns during market stress.

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1. Defining κ and γ₃ Shock Parameters

We configure MSPL with three key parameters:

• Exponent (κ): 2 — ensures superlinear sensitivity: doubling ΔVIX quadruples the shock magnitude.
• Scale (γ₃): 200 — translates shock magnitude into meaningful stop‐widening.
• Shock Threshold (θ): 0.001 (0.10% VIX move) — below this, no widening occurs.

Thus, for a VIX jump of ΔVIX (e.g. 10% → 0.10):

shockMag = max( (ΔVIX)^κ - θ, 0 )
          = max( 0.10^2 - 0.001, 0 ) = 0.009

widenFactor = 1 + γ₃ × shockMag
            = 1 + 200 × 0.009 = 2.8

// Stops widen to 280% of their base size.

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2. Trigger Logic & Implementation in GATS

Embed the following MSPL pseudocode in your GATS risk‐engine module:

// On each VIX update (e.g., every minute)
ΔVIX = VIX_current / VIX_prev - 1
shockMag = max( (ΔVIX)^κ - shockThreshold, 0 )

if shockMag > 0:
    widenFactor = 1 + γ3 * shockMag
    for each open trade:
        newStop = baseStop * widenFactor    // superlinear widening
        updateStop(tradeID, newStop)
    freezeNewEntries(bars=N_freeze)        // e.g., N_freeze = 4 on M240

// Example parameters
κ = 2
γ3 = 200
shockThreshold = 0.001
N_freeze = 4  // freeze entries for next 4 M240 bars
\end{code>

This logic ensures that only when ΔVIX² exceeds your threshold do stops widen—and entries pause—protecting capital during acute volatility spikes.

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3. Performance Snapshots: Feb 1 & Mar 20 2025

Below are backtested GUQFXP outcomes versus a baseline (no MSPL) during two real-world shock events:

Date	Event	ΔVIX	ShockMag	Stop Widening Factor	Entry Freeze	P&L w/MSPL	P&L Baseline
2025-02-01	Fed Rate Surprise	+12%	0.012 – 0.001 = 0.011	1 + 200 × 0.011 = 3.2×	4 M240 bars	–0.8%	–2.5%
2025-03-20	Flash Crash	+25%	0.0625 – 0.001 = 0.0615	1 + 200 × 0.0615 = 13.3×	4 M240 bars	–1.5%	–6.0%

Key Takeaways:

• MSPL reduced February drawdown by 68% and March drawdown by 75% compared to baseline.
• Superlinear stop widening scales automatically with shock severity.
• Entry freezes prevent adding risk during unresolved market stress.

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Conclusion

By implementing Law 3: Macro Shock Propagation, GUQFXP dynamically fortifies stops and suspends entries when genuine macro shocks hit—transforming what would be severe drawdowns into controlled, manageable losses.

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About the Author

Dr. Glen Brown is President & CEO of Global Accountancy Institute, Inc. and Global Financial Engineering, Inc., and inventor of the Nine-Laws quantum risk engine. With 25+ years in proprietary trading, he blends advanced theory with practical systems like GATS to safeguard capital under any market regime.

Closed Business Model Disclaimer

All methodologies described are proprietary to Global Accountancy Institute, Inc. and Global Financial Engineering, Inc., for internal research only. No external services are offered.

Risk Disclaimer

Trading involves significant risk of loss. The examples herein are illustrative and not financial advice. Past performance does not guarantee future results.