So I just started reading the book "fooled by randomness" by Taleb Nassim... I have not completed the book yet but I have a question to ask...
He got me thinking about the black swan event. For those who never read the book, it simply says that if there is even a slightest chance that you can blow up an account, it might happen to you due to randomness/luck.
So... I personally think that my trading strategy is very sound. It is very safe (or so I think). But again, most successful people who went bust also thought they had very sound strategies that are very safe.
I tried to think about how I could go bust and could only come up with 2 scenarios in my head. They are:
1)Because I'm a trend trader, I lose on oscillating periods. One way to lose my whole account is to have the osccilation period last for very long. So long that I wipe out.
2)I never hedge because I don't know how to. But because I always use stops, I will never lose more than my stop. However, it is possible that a price gaps so hard that it goes over my stop. Subsequently, due to very bad liquidity, the stop order only get executed when I have no margin left.
I consider myself very sound with money management. I trade trends, I have to be good at money management to survive until the trending phase or I would most likely be out of business a few times over. However, after reading Taleb's book, I am unsure if my plan is secure.
So... my question to you guys out here is how do you deal with a black swan event? Is there any way to ever make yourself indestructable? By that I mean survive a black swan event and still come out alive to trade another day.
Thoughts?
He got me thinking about the black swan event. For those who never read the book, it simply says that if there is even a slightest chance that you can blow up an account, it might happen to you due to randomness/luck.
So... I personally think that my trading strategy is very sound. It is very safe (or so I think). But again, most successful people who went bust also thought they had very sound strategies that are very safe.
I tried to think about how I could go bust and could only come up with 2 scenarios in my head. They are:
1)Because I'm a trend trader, I lose on oscillating periods. One way to lose my whole account is to have the osccilation period last for very long. So long that I wipe out.
2)I never hedge because I don't know how to. But because I always use stops, I will never lose more than my stop. However, it is possible that a price gaps so hard that it goes over my stop. Subsequently, due to very bad liquidity, the stop order only get executed when I have no margin left.
I consider myself very sound with money management. I trade trends, I have to be good at money management to survive until the trending phase or I would most likely be out of business a few times over. However, after reading Taleb's book, I am unsure if my plan is secure.
So... my question to you guys out here is how do you deal with a black swan event? Is there any way to ever make yourself indestructable? By that I mean survive a black swan event and still come out alive to trade another day.
Thoughts?
