Freqtrade Tail-Risk Circuit Breaker: Preventing Algorithmic Revenge Trading

Freqtrade is great for backtesting indicators, but when consecutive regime changes hit crypto markets, retail bots repeatedly re-enter losing positions until margin call. Here is how institutional quant desks implement hard peak-to-trough equity circuit breakers.

1. Peak-to-Trough Drawdown Circuit Breaker Math

Let Peak Equity be E_max = max_{t}(E_t). Current Drawdown is DD_t = (E_max - E_t) / E_max. If DD_t >= DD_threshold (e.g. 15%), the risk daemon triggers an emergency halt: cancels all open orders, closes active positions at market, and forces a mandatory 24-hour algorithmic cooling-off period.

Python: Zero-Dependency Equity Drawdown Circuit Breaker Daemon

class EquityCircuitBreaker:
    def __init__(self, max_allowed_drawdown_pct: float = 0.15, floor_equity: float = 57.88):
        self.max_dd = max_allowed_drawdown_pct
        self.floor_equity = floor_equity
        self.peak_equity = 0.0

    def evaluate(self, current_equity: float):
        if current_equity > self.peak_equity:
            self.peak_equity = current_equity
            
        current_dd = (self.peak_equity - current_equity) / self.peak_equity
        
        # Absolute dollar circuit breaker
        if current_equity <= self.floor_equity:
            return {"action": "EMERGENCY_HALT", "reason": f"Floor breached: ${current_equity} <= ${self.floor_equity}"}
            
        # Drawdown circuit breaker
        if current_dd >= self.max_dd:
            return {"action": "COOLING_OFF_HALT", "reason": f"Max DD hit: {current_dd*100:.1f}%"}
            
        return {"action": "CONTINUE", "dd_pct": current_dd}

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